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Towards an Integrated Supply Chain trough Vendor-Managed Inventory
- A case study of the spare parts distribution at an international manufacturing company
MARIA DANIELSSON SOFIA NILSSON
Master of Science Thesis Stockholm, Sweden 2013
Mot en Integrerad Distributionskedja genom Vendor-Managed Inventory
- En fallstudie av reservdelsdistributionen på ett internationellt tillverkningsföretag
MARIA DANIELSSON SOFIA NILSSON
Examensarbete Stockholm, Sverige 2013
Mot en Integrerad Distributionskedja genom Vendor-Managed Inventory
- En fallstudie av reservdelsdistributionen på ett internationellt tillverkningsföretag
av
Maria Danielsson Sofia Nilsson
Examensarbete INDEK 2013:57
KTH Industriell teknik och management Industriell ekonomi och organisation
SE-100 44 STOCKHOLM
Towards an Integrated Supply Chain through Vendor-Managed Inventory
- A case study of the spare parts distribution at an international manufacturing company
Maria Danielsson Sofia Nilsson
Master of Science Thesis INDEK 2013:57
KTH Industrial Engineering and Management Industrial Management
SE-100 44 STOCKHOLM
i
Examensarbete INDEK 2013:57
Mot en Integrerad Distributionskedja genom Vendor-Managed Inventory
- En fallstudie av reservdelsdistributionen på ett internationellt tillverkningsföretag
Maria Danielsson
Sofia Nilsson
Godkänt
2013-06-14
Examinator
Håkan Kullvén
Handledare
Matti Kaulio Uppdragsgivare
Toyota Material Handling Europe Kontaktperson
Jonas Bergström
Sammanfattning Supply Chain Management har under det senaste decenniet fått mycket uppmärksamhet. På grund av en ökande internationell handel har forskningen framförallt behandlat Integration och Centralisering inom distributionskedjor. Syftet med denna studie har varit att undersöka hur man kan förbättra prestandan av distributionskedjan hos internationella tillverkningsföretag. Genom ett kvalitativt angreppssätt bidrar denna studie med ett holistiskt synsätt av Supply Chain Management, vilket av författarna är ansett kritiskt för att kunna hantera komplexiteten relaterad till Supply Chain Management och förändringsarbete inom detta område. Studiens forskningsfråga har kunnat besvaras genom att undersöka tre delfrågor. Den första behandlar att identifiera huvudproblemområden i distributionskedjan hos fokusföretaget samt internationella tillverkningsföretag generellt. Den andra delfrågan behandlar vilka teoretiska supply chain policies som skulle kunna användas för att lösa de identifierade problemområdena, medan den tredje och sista delfrågan handlar om att identifiera förutsättningar för att kunna hantera förändringsarbete av, och inom, distributionskedjor på ett lyckat sätt.
Samtliga delfrågor och huvudfrågan har kunnat besvaras genom genomförandet av en litteraturstudie, intervjuer och workshops med externa områdesexperter inom Supply Chain Management och Supply Chain Change, samt interna intervjuer med anställda på olika avdelningar och nivåer inom fokusföretaget, Toyota Material Handling Europe. Två av de intervjuade experterna utgjordes av chefer på logistikavdelningen på två stora internationella tillverkningsföretag. Företagen i fråga utgjordes av Volvo Construction Equipment respektive Ericsson. Resultaten visar att Informations- och Lagerhantering anses vara de huvudområden inom Supply Chain Management, vilka är i störst behov av förbättringar och förändringar på fokusföretaget samt i stora internationella tillverkningsföretag generellt. Därmed kan prestandan av distributionskedjan förbättras om företag fokuserar på dessa två områden.
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För att förbättra Informations- och Lagerhanteringen har fyra teoretiska supply chain policies utvärderats, vilka alla mer eller mindre fokuserar på att öka integrationen mellan medlemmar inom distributionskedjan. Genom att utvärdera dessa supply chain policies med avseende på komplexitet, implementationskostnader samt möjlighet att lösa de identifierade huvudproblemområdena, har författarna kunnat dra slutsatsen att policyn Vendor-Managed Inventory bör vara mest passande att implementera på fokusföretaget. I och med detta resultat utvärderades fokusföretagets lämplighet att implementera Vendor-Managed Inventory utifrån en teoretisk modell utvecklad av Niranjan, Wagner och Nguyen (2012). Resultatet av denna utvärdering stödde det tidigare antagandet att Vendor-Managed Inventory är lämpligt för fokusföretaget att implementera. Författarna rekommenderar dock att en VMI-implementation ska ses som ett första steg varefter förtaget även skall utvärdera möjligheten att inkludera sina större leverantörer och därmed öka integrationen av distributionskedjan ytterligare. Detta för att verkligen uppnå de fördelar informationsdelning kan medföra om information delas med samtliga medlemmar i kedjan. Författarna har med hjälp av dessa resultat kunnat dra den teoretiska och generella slutsatsen att Vendor-Managed Inventory, med dess fokus på att öka integrationen i distributionskedjan genom ökat samarbete och ökad informationsdelning mellan distributionskedjans medlemmar, anses lämplig att implementera då företag vill eller behöver förbättras inom dessa områden. Vidare kan avtalsmodellen Consignment Stock komplettera Vendor-Managed Inventory i en internationell kontext genom användandet av en legal ägare av lager, oavsett lagerposition. Författarna rekommenderar även att stora internationella tillverkningsföretag bör sträva mot att inkludera sina större leverantörer och därmed öka integrationen av, och samarbetet inom, distributionskedjan. Detta skulle medföra att prestandan av distributionskedjan förbättras ytterligare. Därmed bör de utvecklas mot supply chain policyn Collaborative Planning, Forecasting and Replenishment, vilken förespråkar en högre nivå av samarbete än Vendor-Managed Inventory. Vidare visar studien vikten av en välformulerad och kommunicerad Vision i början av större förändringsprojekt. Detta för att öka chanserna till lyckade och välmotiverade förändringar. I och med identifieringen av visionens vitala del i förändringsprojekt, vidareutvecklade författarna modellen; Supply Chain Decison-Making Framework, utvecklad av Chopra & Meindl (2010), till att även inkludera Vision. Dessutom adderades Legala aspekter, då de påverkar både beslutsfattande och möjligheter inom en internationell kontext. Både Vision och Legala aspekter anses av författarna vara kritiska delar för att modellen skall vara applicerbar i en internationell och föränderlig miljö. I linje med forskning inom förändringshantering som identifierats i litteraturen, anses Chopra & Meindl’s vidareutvecklade modell nu vara lämplig att användas som en hjälp för företag att utvärdera sin nuvarande och önskade framtida distributionsstruktur. Nyckelord: vendor-managed inventory, integration inom distributionskedjor, distributionskedjeprestanda, samarbete och koordinering inom distributionskedjor, informationsdelning, collaborative planning forecasting and replenishment, distribution av reservdelar, internationella tillverkningsföretag,
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Abstract
During the last decade, research related to Supply Chain Management has got a great deal of attention. The focus has especially circulated around supply chain integration and centralisation due to the increasingly competitive global market. The aim of this thesis has been to investigate how the supply chain performance in international manufacturing companies could be improved. By having a qualitative approach, this thesis contributes to earlier conducted research by providing a holistic view on supply chain management. This is by the authors considered crucial to manage the complexity of supply chain management and supply chain change. The specific context examined in this thesis concerns the spare parts distribution of large international manufacturing companies. The methods used during the case study consisted of a thorough literature review, external interviews and workshops with experts within supply chain management and supply chain change, and several interviews with employees at different levels and functions at the focal company, Toyota Material Handling Europe. Two of the interviewed external experts were managers at the supply chain function at Volvo Construction Equipment and Ericsson. To answer the main research question, three sub-queries have been examined. The first one concerns what main areas of difficulty that can be identified in the current supply chain of the focal company and in international manufacturing companies in general. The second sub-query concerns which supply chain policies that could be used to solve identified areas of difficulty. Finally, the third sub-query concerns which prerequisites that could be identified to successfully manage change within supply chains.
The results imply that Information and Inventory Management are the main supply chain related areas in need of improvements at the focal company, as well as in international manufacturing companies in general. Thereby supply chain performance could be improved if performance within these areas is enhanced. To solve these two identified areas of difficulty, four theoretical supply chain policies related to supply chain integration have been examined due to complexity, need of investments during an
Master of Science Thesis INDEK 2013:57
Towards an Integrated Supply Chain through Vendor-Managed Inventory
- A case study of the spare parts distribution at an international manufacturing company
Maria Danielsson
Sofia Nilsson
Approved
2013-06-14 Examiner
Håkan Kullvén Supervisor
Matti Kaulio Commissioner
Toyota Material Handling Europe Contact person
Jonas Bergström
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implementation, as well as each policy’s possibility to solve the identified areas of difficulty. The supply chain policy Vendor-Managed Inventory was considered the most appropriate policy for the focal company to implement. As a consequence, an evaluation of the focal company’s readiness to implement a Vendor-Managed Inventory policy was also conducted by using a supply chain readiness framework developed by Niranjan, Wagner and Nguyen (2012). Based on the literature review, including the theoretical evaluation of the appropriateness of implementing Vendor-Managed Inventory, together with the findings from the external expert interviews, the focal company is recommended to implement a Vendor-Managed Inventory strategy. However, the focal company is also recommended to see such an implementation as an opportunity to later investigate the possibility to also include large suppliers in the collaboration. This would increase the level of integration among supply chain members further and thereby secure the company has the possibility to receive the advantages associated with sharing information (including Points-of-Sales data) with all supply chain members.
From a theoretical perspective the conclusion is that Vendor-Managed Inventory, with its focus on supply chain integration through collaboration and information sharing among supply chain members, is considered appropriate to implement when companies want to improve performance in one or all of these areas. Furthermore, the usage of a consignment stock agreement might be an appropriate complement to Vendor-Managed Inventory due to the international context. However, the authors suggest that international manufacturing companies should strive towards including large suppliers in the supply chain collaboration to increase performance further. Thereby they should move towards capabilities promoted in the supply chain policy Collaborative Planning, Forecasting and Replenishment, which advocate a higher level of integration than Vendor-Managed Inventory. Another main finding pinpoints the importance of a well-formulated and communicated vision in the beginning of a transformation, to manage supply chain change successfully. As a consequence, the authors of this thesis expanded the supply chain framework developed by Chopra and Meindl (2010) to also include vision. In addition, legal has been added as an important supply chain driver since it affects supply chain possibilities and decisions. The added parts are considered critical for the framework to be applicable in an international and rapidly changing business environment. Furthermore, the authors suggest the extended framework should be used to support companies evaluate the current and a desired future supply chain in accordance with examined change management literature. Keywords: vendor-managed inventory, supply chain integration, supply chain performance, supply chain collaboration and coordination, information sharing, collaborative planning forecasting and replenishment, spare parts distribution, international manufacturing companies
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Acknowledgements
The work with this Master of Science Thesis has been extensive, educational and interesting. Therefore we would like to express our gratitude towards Toyota Material Handling Europe and the Royal Institute of Technology, which have given us the opportunity to accomplish this thesis. Firstly, we would like to thank our supervisor, Matti Kaulio, from the department of Industrial Economics and Management, who provided guidance and support during the work with the thesis. Secondly, we would especially like to thank our supervisor, Jonas Bergström, at Toyota Material Handling Europe, who has given us a great opportunity to follow and being part of a pre-study conducted at the company. Furthermore, the opportunity to interview a wide range of employees at different levels at the company has been very rewarding. Thirdly, we would like to thank the representatives from Volvo CE and Ericsson. Without their contribution, a comparison between the three companies would not have been possible to conduct.
Lastly, we would like to express our gratefulness to colleagues and family for their support and patience throughout the work. Thank you all, Maria Danielsson Sofia Nilsson
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Glossary/Abbreviations
Agility - “Production is agile if it efficiently changes operating states in response to uncertain and changing demands placed upon it” (Narasimhan, Swink & Kim, 2006, p.443). CPFR – Collaborative Planning, Forecasting and Replenishment CS – Consignment Stock CW – Central Warehouse Downstream in a supply chain – the flow of anything from the supplier to the customer drop-shipping and/or last-mile delivery ECR – Efficient Consumer Response ERP system - Enterprise Resource Planning system Flexibility - “the ability of any system to adapt to internal or external influences, thereby acting or responding to achieve a desired outcome” (Reichhart & Holweg, 2007, p.1148). High-runners – Products with high consumption rate Kaizen - A Japanese term which represents small continuous improvements regarding quality performance and by eliminating all kind of waste within the supply chain
Leanness - “Production is lean if it is accomplished with minimal waste due to unneeded operations, inefficient operations, or excessive buffering in operations” (Narasimhan, Swink & Kim, 2006, p.443). NW - National Warehouse POS data – Point-of-Sales data, sales data that appears immediately when an item is sold to the end-customer Pull strategy/systems - implies that a customer trigger the replacement/replenishment of a product that have been sold. This strategy require data on actual consumption, and ensuring this information to be transmitted quickly throughout the entire supply chain (Chopra & Meindl, 2010) Push strategy/systems - include pushing as many products as possible downstream the supply chain, and is often based on forecasts (Chopra & Meindl, 2010) RMI - Retailer-Managed Inventory Slow-runners – Products with low consumption rate
Supply chain visibility - “the extent to which actors within a supply chain have access to or share information which they consider will be of mutual benefit” (Barratt & Oke, 2007, p. 1230) TMHE - Toyota Material Handling Europe Upstream in the supply chain – the flow of anything from the customer to the supplier
VMI - Vendor-Managed Inventory
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Summary of Figures
Figure 1.1. The value chain in a company Figure 1.2. The three European production facilities, with each central warehouse, Antwerp, and all Market and Sales Companies Figure 2.1. Framework for supply chain decision-making Figure 2.2. A company strategy Figure 2.3. Zone of strategic fit Figure 2.4. Current inventory locations and approximate lead-time between them Figure 2.5. The supply chain structure and flows of RMI Figure 2.6. The supply chain structure and flow characteristics in a VMI arrangement Figure 2.7. Transfer of inventory ownership in RMI compared to Consignment Stock Figure 2.8. The supply chain structure and flow characteristics in a CPFR arrangement Figure 2.9. Change framework Figure 2.10. The most recently performed projects regarding the supply chain structure Figure 3.1. A summary of the research methodology Figure 4.1. Today's supply chain performance versus the performance in a best future scenario within each driver and the total supply chain, in relation to efficiency and responsiveness Figure 4.2. Number of interviewees within Group 3, the strategic level, expressing at least one problem in a category Figure 4.3. Number of interviewees within Group 2, the operational level, expressing at least one problem Figure 4.4. Summary of identified areas of difficulty in Group 1 Figure 4.5. Summary of all identified areas of difficulty Figure 4.6.!Key findings identified!Figure 5.1. Chopra and Meindl’s supply chain decision-making framework expanded to include Company Vision, Supply Chain Vision and Legal Figure 5.2. A framework for evaluation of potential change projects
Summary of Tables
Table 2.1. Some main supply chain priorities depending on supply chain characteristics Table 2.2. Impact of lack of coordination on supply chain performance Table 2.3. Comparison of the basic characteristics of RMI, CS and C&VMI Table 2.4. Summary of the five identified supply chain policies Table 3.1. A summary of interviewees answering the VMI framework Table 3.2. A summary of interviewees within top-management answering the supply chain framework Table 3.3. A summary of interviews with external experts Table 4.1. Rating of each driver and the total supply chain, as perceived today Table 4.2. Rating of each driver and the total supply chain, as perceived in the best future scenario Table 4.3. Identified areas of difficulty associated with the supply chain Table 4.4. Summary of identified areas of difficulty identified within Group 2 Table 4.5. Summary of identified areas of difficulty in Group 1
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Summary of Appendix
Appendix 2.1. Framework developed by Hugos Appendix 2.2. Framework developed by Chopra & Meindl Appendix 2.3. Testing a Company’s Readiness for Implementing VMI used in the Thesis Appendix 2.3b. Original version of Testing a Company’s Readiness for Implementing VMI Appendix 3.1. Interview questions related to the Operational Level Appendix 3.3. Questions based upon the Supply Chain Decision-Making Framework Appendix 4.1. Results from the VMI framework Appendix 4.2. Primary questions to Volvo Construction Equipment and Ericsson Appendix 4.3. Interview with a Global Distribution Centre Manager at Ericsson Appendix 5.1.!The Supply Chain Decision-Making Framework extended with Legal, Company Vision and Supply Chain Vision!Appendix 5.2.!The extended Supply Chain Decision-Making Framework Appendix 3.2 is considered confidential and is not published in this paper.!
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Table of Contents
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1 Introduction During the last decade, there has been a large interest in Supply Chain Management related research due to its potential to improve the efficiency of operations and reduce costs (Darwish & Odah, 2010). According to a study made of Closs et al. (2008), this has become particularly important due to today’s complex product portfolios, often resulting in companies’ having a hard time reaching and maintaining excellent service performance.
In recent years, research regarding Supply Chain Management has mainly highlighted supply chain integration and centralisation, which are strategies considered important to increase service performance. Thereby the aim of recent research has been to develop a supply chain that is coordinated, were supply chain members consequently are co-acting in order to achieve a high(er) service level for end-customers - at a low(er) total supply chain cost (Darwish & Odah, 2010). This has resulted in the development of several supply chain policies focusing on increasing integration among supply chain members. Having such a focus has become crucial to ensure the survival of a company and its partners in an increasingly competitive global market (Chopra & Meindl, 2009; Darwish & Odah, 2010; Duan & Liao, 2013). Today’s competitiveness between companies could therefore be stated to be between how efficient they manage their supply chains, rather than between the companies themselves (Chopra & Meindl, 2009; Duan & Liao, 2013).
A suitable and efficient supply chain inventory strategy is crucial to be able to quickly respond to uncertain customer demand (Duan & Liao, 2013). Ensuring the development of the right supply chain capabilities is therefore critical to develop a sustainable supply chain strategy. Due to the fact that many businesses are shifting from a product-oriented market to a service oriented, service parts logistics has nowadays reached an increased interest (An & Fromm, 2005). Within service logistics, parts are stored within the distribution network until the moment they are needed. This has resulted in the lifetime of parts within service logistics to become much longer than the lifetime required in a strictly product oriented supply chain. Sometimes, unusual parts are never used at all. The dilemma of spare parts becoming obsolete or old, versus the need of fast deliveries to the end customer is therefore critical within service logistics (An & Fromm, 2005). Another important factor today, which increases customer expectations and decrease delivery times, is the growing integration of business and information technology (An & Fromm, 2005). The focal company in this thesis, Toyota Material Handling Europe (TMHE), is a manufacturing company that produces and provides forklifts and forklift spare parts internationally. This thesis concerns their European distribution system of spare parts, which today could be described as decentralised, since each supply chain member separately tries to optimise their own part of the chain. This is partly due to the company history where the two companies BT and Toyota in year 2000 were merged, and in 2005 became TMHE (Toyota, 2013). Overall, their distribution network in Europe today consists of three Central Warehouses located in; Mjölby (Sweden), Ancenis (France) and Bologna (Italy), three complementing Regional Warehouses and 20 market and sales companies, most of them including a National Warehouse (Toyota, 2013). As a continuation of the merger between BT and Toyota, the logistics system has now become a candidate for improvements. Instead of having a Retailer-Managed Inventory (RMI) strategy
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(where each supply chain member manages their own part of the chain), TMHE wants to become more integrated and are therefore currently investigating the possibility of having a single legal owner of all inventories located at the Central Warehouses (i.e. making the supply chain more centralised). Over the years, several projects have been launched with the aim to investigate company specific logistics improvement possibilities. In that sense, this study is not the first of its kind (Toyota, 2013). Although, the results of the projects have contributed to excluding supply chain structures which have been considered unsuitable for the company. Where the company wants to be in the future is therefore still unclear.
"#" !$%&'()*!+&%*,(-./&0!From a practical perspective, this research mainly investigates supply chain improvement possibilities at TMHE, a large international manufacturing company. Each National Warehouse (NW), as well as the three Central Warehouses (CWs) of TMHE, are own legal entities and subsidiaries of TMHE. This induces sub-optimisation of each re-seller’s inventory levels, which generate a need of larger total inventory levels than needed in a centralised supply chain. Furthermore, although all market and sales companies soon have been upgraded to using the same Enterprise Resource Planning system (usually entitled ERP system), the CWs today use three different ERP systems. This has resulted in a complex system setup comprising approximately 40 complementing applications and workarounds to manage to connect the different systems. In turn, this has resulted in the system becoming unnecessarily difficult to update and develop further, since it might cause system failure.
Overall, the supply chain could be considered as not fully integrated after the merger between Toyota and BT. As a consequence; the supply chain performance is not optimised, which implies this investigation to be a continuation of the merger. At the moment each physical transaction between CWs and from CWs to NWs also generates financial transactions, since they are own legal entities. The consequence is an unnecessarily large amount of ordering costs, since the transactions in reality occur within the company. Instead TMHE wants to investigate the possibility and benefits of having one single legal entity owning all inventory located at the CWs. This intends to reduce administration costs, supply chain complexity, and simplify the relocation of stock placements. Simultaneously to this thesis, TMHE conducted a pre-study concerning whether the new proposed setup would be doable from a system and legal perspective. However, the pre-study neither included examining benefits and drawbacks with such a transformation, nor investigated if the proposed setup would solve existing problems. Consequently, they have not investigated whether any supply chain policies could be used to improve supply chain performance. Overall, one could state that identifying potentials and challenges with a possible supply chain transformation in advance, is crucial to smoothly manage supply chain changes and also to clarify and motivate a transformation. Thereby a change perspective has been considered important to include in this thesis.
From a theoretical perspective, there exists a lot of research regarding change management and supply chain management to improve supply chain performance (Duan & Liao, 2012). Furthermore, available research has focused on the upstream part of the supply chain (i.e. supplier/manufacturer) and not as much on the downstream part (i.e. between supplier/retailer). The aim has especially been to develop mathematical theories and approaches to examine the benefits with different supply chain strategies and implementations
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(Persona, Grassi, & Catena, 2005; Gümü!, Jewkes, & Bookbinder, 2008; Battini, Grassi, Persona, & Sgarbossa, 2010; Lee & Ren, 2011). These have however been limited by a number of simplifications in order to be measurable, and therefore only examines a limited amount of areas affecting supply chain performance. In the contrary, this research provides a holistic view of supply chain management, including how critical supply chain parameters, functions and operations interplay and affect each other as well as supply chain performance. Understanding these relations is by the authors considered critical to manage supply chains successfully. To include these parts, a qualitative research has been conducted since every important aspect is not possible to quantify (i.e. calculate the benefits of). This further indicates the complexity of supply chains.
"#1 !2/*!-03!4)5)-%67!8,)5./&0!From a theoretical perspective, the aim of this thesis is to contribute to the overall theoretical knowledge regarding how to improve the supply chain performance of international manufacturing companies. It is also meant to identify prerequisites for companies to successfully motivate and manage the implementation of large supply chain changes, in an international setting. The thesis therefore includes identifying main challenges in supply chains of international manufacturing companies by employing a theoretical supply chain decision-making framework related to supply chain performance and strategy. Lastly, the thesis contributes to the theoretical knowledge of which supply chain policies that might be appropriate for international manufacturing companies to apply.
From a practical perspective the thesis focuses on examining a focal company, with the aim to increase supply chain performance by increasing the level of integration among supply chain members. The aim therefore includes providing recommendations regarding how to solve identified areas of difficulty in the current supply chain of the focal company, as well as pinpoint important aspects to consider to successfully manage the implementation of suggested supply chain changes.
With this background, this research intends to answer the following main research question: How could supply chain performance be improved in international manufacturing companies? With the following sub-queries:
1. What main areas of difficulty can be identified in the current supply chain at the focal
company and in international manufacturing companies in general?
2. Which supply chain policies could be used to solve identified areas of difficulty?
3. What prerequisites could be identified to manage change within supply chains successfully?
"#9 !:/*/.-./&05!The timeframe of the research was 20 weeks, which therefore limited its scope. As a consequence, the research focuses solely on international manufacturing companies with inventory located at captive sales companies/retailers. Further limitations related to the research methodology are discussed in the Methodology chapter (i.e. Chapter 3).
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"#; !<)(/*/.-./&05!This thesis concerns supply chain management of spare parts within an international context. The investigated supply chain, as most supply chains today, consists of several supply chain members. The primary focus of the thesis is to provide a centralised and holistic perspective on supply chain structure and operations, in the downstream supply chain, meaning between the central unit, CWs and NWs. Thereby, supplier operations in the upstream supply chain are excluded. Furthermore, the short time frame limited the number of interviews to be conducted, especially at sales companies since only two employees within one market and sales company were interviewed. In addition, no interviews with service technicians or end customers were conducted and only one person per position and operation at the focal company were in general interviewed. The study concerns the strategic and functional level at international manufacturing companies. Calculations regarding an optimal distribution network have been excluded and are suggested for future research. Instead this research is qualitative, and focuses on academic theories and company strategies. Some other excluded parts concern leader capabilities within supply chains, resource allocation and human resource management, as well as assortment studies at the retailers’ warehouses. Furthermore, the research only concerns large international manufacturing companies with captive sales companies that are own legal entities. Lastly, it excludes New Product Development, Marketing and Sales, as well as Operations, and instead focuses on Distribution to improve company service performance, see Figure 1.1.
"
"
"#= >&*?-0@!<)56%/?./&0!In 2000, Toyota acquired the Swedish forklift manufacturer BT. During the five succeeding years no efforts were made to integrate the two companies, instead they were managed in accordance with a two channels two-brand (2C2B) strategy (i.e. the two different brands were managed as two independent companies). Not until 2006 a restructuring project were initiated with the aim to integrate the two companies by merging their, until this time, separated market and sales companies of Toyota and BT (i.e. going from a 2C2B to a 1C2B strategy). It resulted in the establishment of Toyota Material Handling Europe, TMHE, and was completed in 2009.
Before the merger, the supply chain strategy of BT was to be involved in and have control of the entire supply chain, by mainly using captive market and sales companies. This made it possible to include after sales in their business model. Toyota on the other hand rather used independent dealers to sell their products. When the merger of the sales companies took place the strategy to continue with the business model of BT were chosen. Therefore, several of
Figure 1.1. The value chain in a company (adopted by Chopra & Meindl, 2010)
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Toyotas independent dealers were acquired. In addition, each of the European sales companies of Toyota and BT were merged through the development of one market and sales company for the two brands in each country. The main part of the company sales involves business-to-business solutions, both as product solutions, as well as service solutions. In 2010, service market represented 31% of TMHEs total turnover, and 56% of total TMHE contribution. Furthermore, the service market function has over the years proven itself to be relatively stable compared to forklifts sales. One important mission and vision of the service market division is to provide their customers with the highest customer service and quality, by high levels of First-Fix rates, and a rapid response time of spare parts. The First-Fix rate is an important Key Performance Index (entitled KPI), which provides a measurement regarding if the forklift is ready for use after a service technicians first visit to the customer. Today’s First-Fix target is 95%. For this to be possible, one important issue concerns the technicians having access to the right spare parts. Therefore, attaining a flexible and efficient supply chain (i.e. distribution setup) is of critical importance for the company to be competitive. This implies that the division Parts and Logistics (Parts) is a vital part of the service solution. The Parts function provides all European NWs and independent dealers with spare parts. Each NW at the national market and sales companies in turn provides spare parts to the service technicians, which perform forklift-service for the end-customers of TMHE. The main objective of Parts is to keep a high availability of spare parts in order to maintain a high First-Fix rate, as well as managing the supply chain in an efficient and reliable manner, with short lead-times. Because of the merger, TMHE today comprises three production sites, and together manufacture three types of forklifts. The Headquarter of TMHE is located in Mjölby, Sweden, while the other two manufacturing sites are located in Ancenis in France, and Bologna in Italy. Adjacent to each of these three sites a CW is located, which provides spare parts to customers in the rest of Europe, with a few exceptions.
In 2010, the two NWs of Belgium and the Netherlands were merged together into a Toyota Logistics Center in Antwerp, Belgium, which has the function of a Regional Distribution Center for the two countries. Also the CW in Mjölby has the function of a Regional Distribution Center towards some of the northern countries. Each market and sales company, and the three facilities, are own legal entities. Their locations, as well as the one in Antwerp, are presented in Figure 1.2. Overall, TMHE is composed of approximately 60-80 different legal entities, of which 11 are located at the Headquarter in Mjölby.
Figure 1.2. The three European facilities, with each central warehouse, Antwerp, and all Market and Sales Companies
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"#A !4)?&%.!</5?&5/./&0!The report starts with an Introduction of the research area and a preview of the focal company, in order to get the context of the problem. The Introduction also motivates and states the aim and research questions of this thesis, as well as includes limitations and delimitations of the research.
In the beginning of Chapter 2: Theoretical Findings and Focal Company Description, a supply chain framework developed by Chopra and Meindl (2010) is described. This model is also the main contexture for the disposition of the succeeding theory chapter. The model contains four sub-levels; Competitive Strategy, Supply Chain Strategy, Efficiency vs. Responsiveness (supply chain structure), and lastly Logistical and Cross-Functional Drivers. All these parts are examined in the theory chapter. To simplify, these four sub-levels are put together into two parts: a Strategic Level and an Operational Level, which are also the groups of which the interviewees have been divided into. In the end of each subchapter, a short description and discussion positions the findings from the literature in relation to the focal company. Thereafter, a handful of applicable theoretical policies used to improve supply chain performance are discussed to find the one most suitable for the focal company to implement. The end of the chapter concerns how to manage change within companies in general and within supply chains in particular. Thereafter, Chapter 3: Methodology, presents how the research has been conducted, and plausible source criticism connected to the choice of methods are discussed. Further on, Chapter 4: Empirical Findings, presents the results of the conducted interviews with employees at the focal company, as well as with company representatives from Ericsson and Volvo Construction Equipment. In addition the findings from two workshops with a senior management consultant within supply chain management and change management are presented.
Chapter 5: Discussion, connects findings made from interviews at the focal company with findings made from the external interviews and the conducted literature review.
Lastly, in Chapter 6: Conclusions and Recommendations, the research question is answered by answering each sub-question, and recommendations to the focal company are presented. Thereafter some general conclusions are drawn, and the framework developed by Chopra and Meindl is extended.
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2 Theoretical Framework and Focal Company Description
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Supply chain management is of great importance for companies since it involves all parties related to the customer’s request, e.g. procurement of raw material, manufacturing, customer service, how and where resources should be allocated and transported, information flow, and other supporting operations both before and after sale (Wang, Heng & Chau, 2007; Chopra & Meindl, 2010). Since a well-functioning supply chain and supply chain performance may create a large competitive advantage (Chopra & Meindl, 2010; Darwish & Odah, 2010; Duan & Liao, 2013), it is important to have a supply chain strategy that is aligned with what the customer value (Chopra & Meindl, 2010; Naim & Gosling, 2011). Thereby, there is a need to ensure that all functional strategies correspond to the company strategy. This alignment could be referred to as Strategic Fit (more information in Chapter 2.1.2). Even though each supply chain has its specific market demands and challenges, a pattern regarding important areas to consider when making supply chain decisions could be seen in the literature (Hugos, 2006; Chopra & Meindl; 2010; Johnsson & Mattsson, 2011). Hugos (2006) has in his book identified five decision areas regarding supply chain performance, which any company need to consider to define their supply chain capabilities; Inventory, Transportation, Location, Production and Information. These areas, also referred to as supply chain drivers, represent the connection between existing activities and operations in a supply chain. Among these, information is considered the basis of which to make decisions regarding the other areas. All areas are in turn affected by the trade-off between efficiency and responsiveness. The framework developed by Hugos (2006) could be seen in Appendix 2.1. Hugos framework has its foundation in a framework developed by Chopra and Meindl (2010) referred to as the Supply Chain Decision-Making Framework. The model displays in an easy manner the connection between a company’s competitive strategy, supply chain strategy, and the trade-off between efficiency and responsiveness related to the supply chain structure. It also illustrates the connection to and between six important logistical and cross-functional areas (i.e. drivers) affecting supply chain performance. All of these drivers affect the performance of a company’s supply chain in relation to the efficiency and/or responsiveness of a company’s operations. The framework is illustrated in Figure 2.1 and Appendix 2.2. According to Chopra and Meindl (2010) the model is usually viewed top-down, however they also state that an analysis of the six drivers may indicate a need of change in the company strategies.
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Figure 2.1. Framework for supply chain decision-making (developed by Chopra & Meindl, 2010)
divided into an operational and one strategic level
Generally, the different drivers included in these frameworks gain a great deal of attention in research related to supply chain management. Due to the connection of a company’s supply chain strategy, competitive strategy, and the logistical and cross-functional drivers, in the framework developed by Chopra and Meindl (2010), this framework was considered appropriate for this research. The framework has been used to classify and identify areas of difficulty at the focal company as well as to examine whether a fit exists between the company’s competitive strategy, supply chain strategy, and were the company want to be (i.e. perform) in the future. The model has mainly been used to examine the focal company top-down in accordance with Chopra and Meindl (2010).
The authors of this thesis have in the following two chapters chosen to divide the framework into two parts; one strategic level, including competitive strategy, supply chain strategy and supply chain structure (including the supply chain capabilities responsiveness and efficiency), and an operational level, including the six supply chain drivers.
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1#"#" >&*?)././D)!B.%-.)C@!The first strategy to evaluate in the framework developed by Chopra and Meindl is the competitive strategy. The main part of the competitive strategy involves ensuring the supply chain capabilities are able to satisfy the targeted customer segment (Chopra & Meindl, 2010). Otherwise, it does not support the overall company strategy, which aim is to “create value for its shareholders, customers, and citizens” (Norton & Kaplan, 1996, p.4). As is illustrated in Figure 2.2, the company strategy is developed by several functional strategies that together establish the overall company strategy (Tonnquist, 2010).
"
Important aspects to consider and understand included in the competitive strategy is the targeted customer’s needs and the demand uncertainty these causes. On the basis of customer needs, it is possible to define the desired price, response time, variety and quantity of products needed, service level, product availability, and accordingly a supply chain structure that fits these needs (Chopra & Meindl, 2010).
Figure 2.2. A company strategy (adopted from Tonnquist, 2010)
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!"#$%&'()"*+,-./(0&*1"$%$%2"(!$,+$"34(Related to spare parts, the competitive strategy of TMHE is to deliver the right products and spare parts, which are superior compared to competitors regarding safety and efficiency. Another manner of which to differentiate from competitors is by decreasing the total cost of ownership for the customer by providing service solutions (i.e. forklifts could be bought or leased, together with service solutions such as maintenance). Offering maintenance creates a need of replenishment at warehouses, while breakdowns often cause a need of express deliveries. Another competitive advantage, related to the need of being able to provide customers with spare parts quickly, is the existence of market and sales companies in each country.
Today, TMHE has a close collaboration with their customers and provide all of their specific spare parts 10 years after the last one was produced. This causes a need of storing old spare parts with an uncertain and small demand. The strategy entails that the margin on spare parts with high demand needs to cover the cost of providing customers with spare parts with low and uncertain demand. This ability has become a competitive advantage compared to competitors, and has developed TMHEs position in the European market.
1#"#1 B,??(@!>7-/0!B.%-.)C@!The second part included in the strategic level includes evaluating the supply chain strategy. One of the primarily decisions to consider within this area is where on the centralised-decentralised spectrum the company wants to operate. In the decentralised strategy, each supply chain member separately makes decisions regardless of how it affects the other supply chain members (Duan & Liao, 2012). However, in the centralised supply chain strategy, decisions for all members are taken centrally. The centralised strategy is in general considered more cost efficient than the decentralised strategy since it contributes to optimising the performance of the entire supply chain, instead of sub-optimising each part (Duan & Liao, 2012). Although, a decentralised supply chain increases local control, which enhance local influence of the operations (Duan & Liao, 2012). Overall, there are pros and cons for each strategy, and the general reason for a company to transform from one supply chain strategy into the other is due to economical reasons (e.g. maximise profits or optimise material handling) (Duan & Liao, 2012; Elgazzar et al., 2012).
After the supply chain has been evaluated and decisions regarding centralisation versus decentralisation have been made, it is possible to map the supply chain on the spectrum of responsiveness versus cost (higher responsiveness requires higher cost). Thereafter the company needs to match the supply chain responsiveness and its applied level of demand uncertainty to see if it results in strategic fit (Figure 2.3) (Chopra & Meindl, 2010). ((
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!$,+$"3%#(5%$(When a company has ensured alignment between the competitive strategy and the supply chain strategy (i.e. it is consistency between what the customer prioritise and what the supply chain strategy and the competitive strategy want to satisfy) strategic fit has been achieved (Chopra & Meindl, 2010). It is important that all processes and functions within the organisation are aligned with the supply chain strategy. They should also contribute to the overall supply chain success, since their separate performance affect the other parts (Chopra & Meindl, 2010). Even though, Sari (2008) claims that it is common that companies choose tools, methods or policies (i.e. supply chain strategy) due to current fashion, without analysing its suitability for the company specific context. Since different tools often cause different results depending on company, product and industry specific factors, it is important to investigate the appropriateness of considered supply chain strategy before its implementation (Sari, 2008).
!"#$%&'()"*+,-./(!61174(08+%'(!$,+$"34(The spare part distribution of TMHE is vital for the service organisation due to the importance of providing service technicians with spare parts. The mission of TMHE Distribution division is to develop a flexible, integrated and efficient logistic organisation based on the core values of Toyota, in order to provide customers with the best service possible.
More specifically the main objectives are to keep a high availability of spare parts and to manage the supply chain in an efficient and reliable manner with short lead-time, to ensure a high First-Fix rate. When a market and sales company is lacking spare parts, it is very
Figure 2.3. Zone of strategic fit (developed by: Fisher, 1997, and Chopra & Meindl, 2010, adopted by Wagner, Grosse-Ruyken & Erhun, 2012)!
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important with rapid response time to minimise the downtime when the customer cannot use its forklift. It is therefore important to develop a flexible logistic setup, which is capable of fast deliveries of spare part. Overall, the spare parts distribution symbolise being close to the market and its customers, and to manage overnight deliveries. In addition, it needs to have a focus on achieving a high service level and manage changes in demand. However, it is also considered important to keep supply chain costs on an optimal level. TMHE Parts & Logistics Vision is to:
1 Deliver the highest levels of support to all TMHE customers 2 Secure an integrated and flexible European logistic infrastructure
3 Maximise efficiencies from an integrated and skilled organisation 4 Make Toyota Production System the foundation for quality and productivity in logistics
5 Continuously embrace our Toyota values
1#"#9 B,??(@!>7-/0!B.%,6.,%)!-03!>-?-'/(/./)5!It is important to understand that it does neither exist one supply chain that fits with every company, nor a given supply chain strategy for a specific competitive strategy (Chopra & Meindl, 2010). A recommendation mentioned by Chopra and Meindl (2010) is to tailor the supply chain to meet the company’s specific customers’ needs and demands. An additional recommendation mentioned by Naylor, Naim and Berry (1999) is the essentialness of having a total supply chain perspective, instead of looking at operations in isolation. The importance of having this view seems to be generally accepted in recent research. Hugos (2006) for example claims that today supply chain management concerns a holistic view of the supply chain and its members, compared to the earlier concept logistics, which only concerns activities inside the boundaries of a single organisation. This has resulted in viewing the supply chain as a system and from a wider perspective. According to Hugos (2006) this is the only way to balance supply chain activities and therefore to optimise total supply chain performance and customer service level. However, managing to keep this system perspective in reality is not always an easy task.
Depending on the aim of the supply chain, Fisher (1997) lists some main supply chain priorities, regarding responsiveness and efficiency, which companies need to consider when developing the supply chain structure. These priorities are summarised in Table 2.1. Still, pure responsiveness and pure efficiency are often described as the two extremes, and usually companies have to make trade-offs between them (Chopra & Meindl, 2010).
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Table 2.1. Some main supply chain priorities depending on supply chain characteristics (adopted by Fisher, 1997)
Efficient Supply Chain Responsive Supply Chain
Definition
Its aim is “to minimize cost through efficient coordination of material flows and manufacturing processes” (Youn, Yang and Roh, 2012, p.477).
“... the speed with which the system can adjust its output within the available range of the four external flexibility types: product, mix, volume and delivery, in response to an external stimulus, e.g. a customer order” (Reichhart & Holweg, 2007, p.1149)
Primary Purpose Supply predictable demand efficiency at the lowest possible cost
Respond quickly to unpredictable demand to minimize stock-outs, obsolete inventory, and forced markdowns
Manufacturing Focus Maintain high average utilization rate Deploy excess buffer capacity
Inventory Strategy Generate high turns and minimize inventory throughout the chain
Deploy significant stocks of parts or finished goods
Lead-time Focus Shorten lead-time for cost and quality Invest aggressively to reduce lead-time
Approach to Choosing Suppliers Select primarily for cost and quality Select primarily for speed, flexibility, and
quality Product-design Strategy
Maximise performance and minimise cost
One modular design to postpone product differentiation as long as possible
When a company desires to be responsive (i.e. having a short lead-time and thereby the ability to easily shift focus) it needs to maintain a high level of inventory (Hugos, 2006). Although, this is contradictory to operating effectively, which calls for reducing inventory levels (Hugos, 2006). Even though several authors agree about the view of a trade-off between responsiveness and efficiency in supply chains (Fisher 1997; Hugos, 2006; Chopra & Meindl, 2008), all authors do not (Naylor, Niam & Berry, 1999; Wang, Huang & Dismukes, 2003; Naim & Gosling, 2011). Instead, Naylor et al., (1999) state that a company could evaluate the decoupling point in the supply chain (i.e. a point in the supply chain that accumulates a buffer of inventory between a stable and a varying demand in the supply chain), and thereby apply lean manufacturing on parts that use, or could use, forecasting to predict demand. This would enable smooth demand variability in the upstream supply chain (Naylor et al., 1999). However, a critical aspect concerns how forecasts are made, and how much companies rely on the forecasts when making decisions (Chopra & Meindl, 2010). In the downstream supply chain, customer demand is often more uncertain and fluctuating, which cause a need of a robust supply strategy (Naylor et al., 1999). This implies agile manufacturing should be applied downstream to satisfy customer demand (Naylor et al., 1999). The use of leanness and agility in different parts of the supply chain is by Naylor et al. (1999) referred to as leagility, and by Wang, et al. (2003) hybrid supply chains, since these supply chains often are constructed of both a push and a pull strategy. In leagile supply chains, Naylor et al. (1999) recommend companies to postpone the decoupling point as much as reasonable, since it reduces the amount of needed stock within the supply chain as well as the risk of retailers being out of stock for long periods of time.
The research conducted by Naylor et al. (1999) concerning leagility, has later been evaluated by one of the co-authors, in order to defend the concept. In that research, Naim and Gosling (2011) concluded the policy still seems valid, which is supported by Burgess et al. (2002).
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However, it is claimed that some disagreements have arisen due to the non-existence of appropriate definitions of e.g. lean (Naim & Gosling, 2011). Neither any general accepted relationship exists between responsiveness and efficiency, nor between agility and leanness (Narasimhan et al., 2006). Narasimhan et al. (2006) conclude in their research that two general approaches are stated in the literature concerning lean and agile manufacturing. Either the approaches are referred to as manufacturing paradigms, which often cause indistinct differences between the two approaches since they contain “philosophical, value and cultural elements” (Narasimhan et al., 2006, p. 441), or as performance capabilities, which often mix performance outcomes and manufacturing practices and thereby state confusing definitions (Narasimhan et al., 2006). The most common definitions of leanness and agility are presented in the Glossary/Abbreviations in the beginning of this report, while the definitions of responsiveness and efficiency are presented in Table 2.1. Hugos (2006) states that if a company wants to serve a mass market and have a strategy to compete on the basis of price, the need to develop an efficient supply chain that minimises costs arises. If the company strategy instead is to compete on the basis of customer service to reach a specific target customer segment, the company’s focus should however be on developing a supply chain optimised for responsiveness. Even though there are disagreements concerning definitions in the literature, it is common to examine supply chains due to the capabilities efficiency and responsiveness, or leanness and agility (Naylor et al, 1999; Wang et al., 2004; Narasimhan et al., 2006; Naim & Gosling, 2011). Since Chopra & Meindl use responsiveness and efficiency as capabilities in their framework, these are the ones that have been used in this thesis. However, it is important to understand the idea with the other definitions. Independent of which supply chain strategy a company chooses, Wagner et al. (2012) pinpoints the importance of knowing that it may be costly to keep a strategy that do not fit the product portfolio.
!"#$%&'()"*+,-./(!61174(08+%'(!$,6#$6,"(+'9(0+1+:%7%$%".(As mentioned in previous literature section, there exist supply chains that aim to be both responsive and efficient. This strategy is adopted by TMHE Parts & Logistics, however mainly expressed as the desire of being lean and agile. The supply chain of TMHE Parts & Logistics is desired to be lean in the factories, while agile at the marketplace concerning customer service, interaction and care. One of the most important needs of TMHE is to be responsive towards customers. Some industry characteristics are the large amount of spare parts to be distributed, with their different size, price and sales rate. Even though the service level of most of the CWs and NWs are considered high, some weaknesses expressed during interviews concerns the lack of attaining a holistic view of the supply chain due to the sub-optimisation among supply chain members.
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One area that is widely examined in literature and closely related to information sharing is supply chain coordination. It is established when all stages in a supply chain work together to maximise the total supply chain profitability by sharing information, and thereby contributes to achieving an integrated supply chain. Supply chain coordination is therefore the subject of the following subchapter.
;'#,"+."9(;'$"3,+$%&'($8,&638(!61174(08+%'(0&&,9%'+$%&'(During the last decade, a lot of research has been made within the supply chain coordination and optimisation area. One reason may be due to the large amount of demand uncertainty supply chains may cause when companies choose to outsource their production to low-cost countries, as well as due to today’s global supply chain structure (Kalchschmidt, Zotteri and Verganti, 2003; Wang, Lin and Yu, 2011; Bygballe, Bø and Grønland, 2012). Supply chain coordination is a concept relating and critical to a decentralised supply chain, since a centralised supply chain is considered to be perfectly coordinated (Li, Zhu & Huang, 2008). Overall, it could be stated that coordination between supply chain members requires each stage to share appropriate information with other stages. Chopra and Meindl (2010) state that lack of coordination leads to a degradation of responsiveness and has a negative impact on the total supply chain profitability, this is in accordance with Wang et al. (2011). Therefore they also pinpoint the importance of letting every member in the supply chain be aware of the impact its actions have on other supply chain stages. Lack of coordination often occurs because different stages in the supply chain have conflicting objectives, which could arise if different supply chain stages have different owners (Chopra & Meindl, 2010). This implies there is a lack of collaboration between the different supply chain members and often results in actions that diminish total supply chain profits. Lack of coordination also occurs because information transferred between stages is delayed or distorted (Chopra & Meindl, 2010). The latter arises as information move across the supply chain without being shared with all stages, and delays often occur due to the large amount of product variety in today’s supply chains (Hugos, 2006; Chopra & Meindl, 2010). The fundamental challenge for companies has therefore become to achieve coordination, in spite of multiple ownership and increased product variety. Furthermore, lack of coordination also increases the bullwhip effect, which result in demand variability in the upstream supply chain, even though sales downstream are stable (Kalchschmidt et al., 2003; Chopra & Meindl, 2010). One common cause of the bullwhip effect is when forecasts are made at each supply chain stage (Sari, 2008; Chopra & Meindl, 2010). This results in each supply chain stage using order data to forecast future demand, instead of actual sales data and customer demand. One way to increase the reliability of forecasts is therefore to ensure it is based upon Point-of-Sales (POS) data, which should be shared across the entire supply chain (Sari, 2008; Chopra & Meindl, 2010). Supply chain coordination direct or indirect affects the customer service (Sari, 2008). Some general performance measures, due to coordination, are summarised in Table 2.2. In addition, it is by several authors considered important to understand the impact of lack of coordination and information sharing on supply chain performance, however also the cost of providing customers with a specific level of product availability (Chopra & Meindl, 2010).
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Table 2.2. Impact of lack of coordination on supply chain performance (Chopra & Meindl, 2010)
Performance Measure Impact of Lack of Coordination
Manufacturing cost Inventory cost Replenishment lead time Transportation cost Shipping and receiving cost Level of product availability Profitability
Increases Increases Increases Increases Increases Decreases Decreases
Chopra and Meindl (2010) have identified 5 obstacles that need to be managed to achieve supply chain coordination:
• Align goals and incentives • Improve information accuracy • Improve operational performance • Design pricing strategies to stabilise orders • Build strategic partnerships and trust
Furthermore, trust and commitment between supply chain members, as well as good organisational structure that should simplify and support information sharing, is crucial to improve supply chain partnership and success (Hugos, 2006; Chopra & Meindl, 2010). By assigning the replenishment responsibility across the supply chain to a single entity, earlier explained problems could be solved (Hugos, 2006; Chopra & Meindl, 2010). A common industry practice, which is based on single point managing replenishment decisions, is Vendor-Managed Inventory with a Consignment Stock agreement. Vendor-Managed Inventory and other similar supply chain policies are explained in Chapter 2.3.
!"#$%&'()"*+,-./(;'<&,*+$%&'(Today, the company’s organisational structure consists of a large number of different legal entities and systems, which make information sharing complex. One issue concerns that the company today has three different interfaces towards their customers, e.g. the ERP system used vary between manufacturing sites. This could be considered a sign of the company not being fully integrated after the merger. The use of several different ERP systems has made it difficult to evaluate the CWs performance levels. Furthermore, the ERP system used at the CW in Mjölby, and the Toyota Logistic Centre in Antwerp (M3 or the older version Movex), today include approximately 40 complementing applications and workarounds in order to interconnect with each other as well as the systems used in Bologna (Pacman) and Ancenis (Spare Parts System). These workarounds are today necessary for e.g. ID updates for Toyota branded spare parts, and assures that parts and assortment updates are replicated by the system at night. However, these complementing applications and workarounds contribute to a very complex system, which is unnecessarily hard to complement and update and too often causes system failure. At the moment, an on-going project concerns upgrading all market and sales companies today are using Movex to use M3 instead. Although the issue concerning the different ERP systems at the CW’s remains. Between subsidiaries using M3, information is continuously updated.
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In the current supply chain structure, the Advisory unit in Mjölby use an inventory control tool entitled Supply Chain Planner (SCP). The purpose with the tool is to manage; optimisation of inventory levels and inventory placements, needed articles in inventory, fill-rate etc. and automatically keep track of inventory and service levels. Still, the Advisory unit cannot see product sizes or warehouse space, which may create an uncertainty at the market and sales companies of whether inventory advises are useful and/or possible to supply.
The stocking policy is developed in cooperation with the subsidiaries. However, firstly the supply chain planner tool is only connected to a limited number of market and sales companies (i.e. NWs), secondly the unit has no authority to implement provided stocking policies unless the NW approves it. Thereby all parties in the distribution chain try to optimise their own part instead of looking at the entire system, which increases the risk of the bullwhip effect. The inability to implement the inventory suggestions at the NWs is a dilemma. Having more central influence of the market and sales companies and more central processes, could improve the performance and provide a better holistic view of the supply chain, resulting in an improved supply chain performance from a total perspective which results in improved customer satisfaction.
1#1#1 +-6/(/./)5!The driver facilities concerns decisions regarding the facilities geographical location, capacity, flexibility and purpose, since it involve both storage facilities and cross-docking units, as well as production facilities (Chopra & Meindl, 2010). Thereby the driver has a significant impact on supply chain performance and decisions regarding responsiveness and efficiency. Thereby companies are able to develop cost efficient supply chains by having a few large central warehouses, or responsiveness by using a couple of smaller national or regional warehouses close to the customers (Hugos, 2006; Chopra & Meindl, 2010).
High responsiveness with many local facilities (decentralised) is often a very costly, although flexible strategy due to shorter lead-times. On the other hand, the choice of having all inventories at one location (centralised) may increase economies of scales, however increase transportation costs and decrease the response time (Hugos, 2006; Chopra & Meindl, 2010). The aim with the driver is thereby to receive desired level of responsiveness for as low cost as possible (Chopra & Meindl, 2010).
!"#$%&'()"*+,-./(5+#%7%$%".(The three production facilities are positioned in Mjölby, Ancenis and Bologna due to historical reasons. Adjacent to each of the three facilities of TMHE, a CW of spare parts is located, which together provide spare parts to the rest of Europe. Connected to each of the three manufacturing sites, a bundle of local suppliers are located which provide specific and local spare parts and products, such as engines and oils. In the new investigated setup, the already existing facilities are still to be used. This implies the decision regarding facility location mentioned in the theory, are not under consideration in this case. Instead the facilities are already considered to be “located in positions that could deliver according to required service level” (Interviewee 8). However, the responsibility of each facility is key to consider when examining possible future scenarios. In this specific case, the facilities are fixed and thereby restrict possible strategies of the other supply chain drivers.
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1#1#9 F0D)0.&%@!The driver inventory is closely related to supply chain efficiency and responsiveness, since a larger inventory often reduces lead-time and increases responsiveness, but in turn increases cost and capital tied up (Chopra & Meindl, 2010). In addition, the inventory level is of great importance since it directly affects the service level. The inventory level is the sum of all inventories held by facilities, distributors and retailers (Hugos, 2006). Furthermore, the amount of inventories and their locations also affects the trade-off between having a centralised or decentralised inventory strategy, i.e. having inventory at many or few locations.
The primary purpose of the existence of inventory is due to a mismatch between supply and demand and is a major source of cost and capital tied up in the supply chain (Chopra & Meindl, 2010). However, the mismatch tends to exist due to demand uncertainty, and a need of ensuring future customers’ requests (i.e. ensuring a desired level of responsiveness) (Hugos, 2006; Chopra & Meindl, 2010). In these cases, inventory (e.g. safety stock) might actually be a valid approach to absorb this kind of uncertainty (Fisher, 1997; Hugos, 2006, Chopra & Meindl, 2010) even though contemporary research, e.g. Just-In-Time production systems, often suggests the opposite (Fisher, 1997). Still, this way of hedging uncertainty with buffers should according to Fisher (1997) not be adopted until demand uncertainty has been actively reduced by attempts to obtain new market information, reduce lead-time, and increase flexibility. Chopra and Meindl (2010) state that; “Firms that target customers who value short response time must locate close to them” (Chopra & Meindl, 2010, p.131). However, they also state that the use of “rapid means of transportation” allows companies the use of fewer facilities but still obtain a high level of responsiveness (Chopra and Meindl, 2010, p.131). A common method to increase supply chain efficiency is the usage of Distribution centres (DCs). These make it possible to have inventory at a chosen amount of locations and use e.g. trucks to transport the products to customers (i.e. stores), instead of having a high inventory level at every store (Chopra & Meindl, 2010). This makes it possible to gain from economies of scale. Section Remarks: Inventory Today, inventory is located in CW’s and NW’s, as well as a small inventory in the service vans, and could be stated as being country based. In Figure 2.4 all parts of the supply chain that keep inventory are presented as well as the lead-time between the different stages.
"
"
"
"
"
"
Figure 2.4. Current inventory locations and approximate lead-time between them!
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When an order arrives from a service technician to the national market and sales company, they first determine whether the part is available in stock. If the answer is no, the order continues to the CW storing the requested part, which sends the part to the market and sales company if, or when, it is available.
Having only one CW to gain a more efficient supply chain has already been excluded by TMHE, which is later motivated in chapter 2.4. However, merging the inventories of chosen market and sales companies, similar to the one conducted in Antwerp has been stated as a possible future approach to increase fill-rates and thus service levels.
Since inventory is stored in many supply chain stages, it exist a lot of capital tied up. Although, due to the service guarantee, TMHE needs to provide spare parts required for a specific forklift 10 years after the last one was produced. This, together with a production lead-time from suppliers ranging from a couple of weeks to some months, causes a need of having inventory to manage rapid deliveries.
1#1#; H%-05?&%.-./&0!Transportation concerns how products are distributed or transferred between supply chain members, i.e. from supplier and manufacturer to end-customer (Chopra & Meindl, 2010). According to Chopra and Meindl (2010) distribution or transportations is a very important driver for the firm’s overall profitability. In addition, Li and Chan (2012) state that logistics has an important part in customisation of the business operations since efficiency and flexibility by them is considered the “key to success in a supply chain” (Li & Chan, 2012, p.5636). The most important part to consider regarding transportation is how products are to be delivered to the customers. Should they be transported from a supply source directly to the buying customer by e.g. drop-shipping and/or last-mile delivery? Or should they pass through intermediate consolidation points? The first approach allows a supply chain to be more responsive, while the second result in a more efficient supply chain. The choice is affected by the company’s competitive strategy with the aim to find the right balance between efficiency and responsiveness, and where to locate facilities due to a centralised or decentralised business strategy (Chopra & Meindl, 2010). Chopra and Meindl (2010) claim that the only way for a manufacturer to keep transportation costs low, is by bringing full truckloads of products close to the market and then distribute locally using smaller vehicles. This approach does also support high Returnability, which is usually related to more responsive approaches e.g. last-mile deliveries (Chopra & Meindl, 2010).
!"#$%&'()"*+,-./(=,+'.1&,$+$%&'(When spare parts are ordered at TMHE, the service technicians in Europe receive the delivery the next morning. This is called “deliveries over night” and is an outcome of the 24 hours delivery policy. To the rest of the world, the spare parts are to be delivered within 48 hours. Ordered spare parts are in some countries (Sweden, Denmark, Belgium and Netherlands) delivered directly into the service vans, which according to the literature could be described as drop-shipping or distributor storage with last-mile delivery. Otherwise, the NWs are responsible for distributing spare parts into the service vans. In order to reduce costs associated with transportation, TMHE has started to combine transports of spare parts and forklifts from Mjölby when it is possible.
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Today a lot of transportation occurs from CWs to NWs/market and sales companies and the Toyota Logistics Centre in Antwerp, which makes transportation an important cost driver. Most spare parts are transported with the replenishment flow and in more urgent cases by express deliveries. Each time an article is transferred between two legal entities it has to be purchased by the other part, with a transaction as result. Thereby a national net price is calculated, which differ depending on country. The net price is used to calculate e.g. the transfer price and thereby taxes associated with the sale. Today, the market and sales companies are responsible for Value Added Tax (VAT), Intrastat reporting and inventory levels, since they are separate subsidiaries within TMHE.
1#1#= B&,%6/0C!The driver sourcing affects how a company chooses to perform their specific supply chain activities, whether they should be kept in-house or outsourced, as well as supplier selection (An & Fromm, 2005; Chopra & Meindl, 2010). Companies need to determine whether responsiveness or efficiency is the most important one for the company’s competitiveness when choosing suppliers. Overall, companies that are unsure whether they are able to reach enough responsiveness by their own, could or should outsource some parts of their operations to a responsive third party (Chopra & Meindl, 2010).
!"#$%&'()"*+,-./(!&6,#%'3(In general TMHE’s suppliers manufacture almost every part used in the forklifts. Since TMHE rely on their suppliers, it is important to manage the suppliers effectively and keep a good relationship with them. This especially concerns larger suppliers. Most local suppliers are located close to markets that request their spare parts, which ensures quick deliveries. In general, local spare parts accounts for approximately 30 percent of the total service business and some are requested and provided in more than one region.
1#1#A $%/6/0C!The last supply chain driver mentioned by Chopra and Meindl (2010) is pricing. It concerns which customer segment the products or services are supposed to satisfy, and which expectations the customers may have related to the price. In a pure efficient supply chain, the primary aim is to supply the customer at the lowest possible cost, due to price sensitivity of the customers. In a responsive supply chain the main purpose is to quickly respond to customer demand, which decreases the importance of the price, i.e. the impact of price from a customer perspective (Chopra & Meindl, 2010).
In a continuously developing environment, it is important to adjust to new customer requirements (An & Fromm, 2005). One important area of particular importance is IT technologies, which could help the customer selecting the right product for the right price. By increasing visibility and the simplicity to interact with the company, the traditional purchasing patterns might get modified (An & Fromm, 2005).
!"#$%&'()"*+,-./(>,%#%'3(The products and spare parts offered by TMHE are long lasting, of premium quality and withstand harsh weather conditions. This induces a price that is higher than competitors with a low cost focus. Because of the need to provide customers with every spare part they might need, keeping higher margins on high-runners becomes necessary, since they need to cover the cost of spare parts with high demand uncertainty (i.e. slow-runners).
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1#9 !F*?%&D/0C!F0.)C%-./&0I!B)()6./&0!&G!B,??(@!>7-/0!$&(/6@!G0! .7)! I&((&K/0C! 5)6./&0N! %)()D-0.! .7)&%)./6-(! ?&(/6/)5! .7-.! 6&,(3! ')! ,5)3! .&! /06%)-5)! /0.)C%-./&0!-*&0C! 5,??(@! 67-/0!*)*')%5!-%)!3)56%/')3#!2((! ?&(/6/)5! -%)! /0! .7)! )03! 5,**-%/5)3! /0!-! .-'()! .&!5/*?(/I@! 6&*?-%/5&0! -03! /5! I&((&K)3! '@! -! 3/56,55/&0! %)C-%3/0C! K7/67! &0)! */C7.! ')! *&5.!-??%&?%/-.)!I&%!.7)!I&6-(!6&*?-0@#!
1#9#" 4).-/()%J*-0-C)3!/0D)0.&%@!Retailer-Managed Inventory (RMI) is a traditional approach in managing inventory in supply chains (Lee & Ren, 2011), were often very little or no information is shared between members (Sari, 2008). The retailer places orders to the supplier to meet their expected demand (Lee & Ren, 2011) and once the goods arrives to the warehouse, the customer is invoiced by the supplier (Gümü!, Jewkes & Bookbinder, 2008). Thereafter the retailer owns the inventory (Lee & Ren, 2011). This implies that suppliers in the upstream supply chain develop forecasts based on orders from their closest downstream supplier, and not actual sales data (Sari, 2008). Each retailer makes their inventory decisions based on what they think will be most favourable for them (Gümü! et al., 2008). Costs associated with this policy, which the retailer need to bear is; fixed ordering cost, inventory-holding and backorder-penalty costs, as well as wholesale payments to the supplier at times of order receipts (Lee & Ren, 2011). The supplier on the other hand incurs fixed and variable costs of production and delivery (Lee & Ren, 2011). Sari (2008) states RMI, or as he entitle it; the traditional ways of doing business, for a single item could be illustrated as in Figure 2.5. The Distributor could in reality be for example a supplier or vendor. RMI is the supply chain structure with lowest level of supply chain integration (Sari, 2008).
(Figure 2.5. The supply chain structure and flows of RMI (developed by Sari, 2008)
1#9#1 K)03&%J*-0-C)3!/0D)0.&%@!Vendor-Managed Inventory (VMI), also known as Supplier-Managed Inventory or Continuous Replenishment, has become a commonly discussed supply chain initiative throughout the literature. It is a manner to improve multi-firm supply chain efficiency by stock monitoring and control, through the encouragement of information sharing among trading partners (Sari, 2008; Zavanella & Zanoni, 2009; Niranjan et al., 2012). Consequently, VMI has been recognised as one of the most successful practices that enhances supply chain integration. (Darwish & Odah, 2010) The policy was created in the late 1980s due to the successful partnership between Wal-Mart and Procter & Gamble, and has now became considered and implemented by many firms in different industries, e.g. Johnson & Johnson, Barilla (Zavanella & Zanoni, 2009; Niranjan et al., 2012) and Amazon’s warehouses (Chen, Lin, & Cheng, 2010).
VMI is an supply chain initiative where the supplier, or vendor, (further on referred to as only vendor) cooperates with their customers to reach a more efficient inventory management and supply chain by letting the vendor manage inventory located at the customer (Niranjan et al.,
23
2012). This means that the vendor makes the inventory replenishment decisions on behalf of the customer by e.g. monitoring inventory levels and actual product withdrawal, decides the appropriate inventory levels, as well as choses the appropriate inventory policies to maintain the agreed inventory levels (Kuk, 2004; Sari, 2008; Niranjan et al., 2012). In order for the vendor to manage its commitment, the retailer provides the vendor with real-time inventory data (Sari, 2008). In most cases, all other members in the supply chain are however operating in accordance to the RMI structure (Sari, 2008). Figure 2.6 shows the flow characteristics in a VMI arrangement for a single item in accordance to Sari (2008).
(
Figure 2.6. The supply chain structure and flow characteristics in a VMI arrangement (developed by Sari, 2008)
Some positive outcomes of VMI is the possibility to lower the stock-out risk, increase inventory turnover and decrease the level of safety stock (which will decrease costs) (Kuk, 2004). It also makes it possible for the vendor to benefit from economies of scale (Lee & Ren, 2011). From a service perspective, cycle times could be shortened, which together with the possibility of a more accurate forecast improves service performance (Kuk, 2004). From a retailer perspective the strategy is especially associated with improved service performance and reduction of overhead costs (Lee & Ren, 2011). Furthermore the cost for both the vendor and the retailer, i.e. the total supply chain cost, always decrease when using VMI (Lee & Ren, 2011). This is in line with Kulp, Lee & Ofek (2004) who suggest that VMI is directly related to increased product margins due to higher production efficiencies. In VMI, the inventory located at the customer could be owned by either the customer, or by the vendor (Jonsson & Mattsson, 2011). In the latter case, a consignment stock agreement is obtained between customer and supplier (Gümü! et al., 2008; Jonsson & Mattsson, 2011). To conclude, VMI offers a competitive advantage for retailers because it results in higher product availability and service level as well as lower inventory monitoring and ordering cost than possible with RMI (Archabal et al., in Sari, 2008, p.576; Kuk, 2004; Lee & Ren, 2011). At the same time the vendor has the possibility to optimise inventory levels and distribution policies (Kuk, 2004; Lee & Ren, 2011).
Despite all the potential benefits with VMI, it is important to understand that such a policy does not fit every company since it might not have the right prerequisites to attain the possible benefits with VMI (Niranjan, et al., 2012). Such prerequisites could be the need of focusing on detailed inventory planning as well as having a company strategy that fits with the possible benefits of VMI (Niranjan, et al., 2012). Another critical factor for VMI success is to have good connectivity and information sharing between vendor and retailer (Kuk, 2004). If a company is lacking such prerequisites there is a large risk of failing with a VMI implementation (Niranjan, et al., 2012).
(
24
(
=8"(?@;(,"+9%'"..(<,+*"A&,-(Niranjan et al. (2012) have developed a framework for testing a company’s readiness for implementing VMI. The framework is supposed to guide companies whether implementing VMI could be an appropriate choice. It is based on a thorough literature study concerning VMI were 15 prerequisites for VMI were drawn. Thereafter, five academic experts, as well as five industry experts, rated the importance of each prerequisite, which resulted in each prerequisite being weighted differently in the framework. The academic experts all held a doctorate in supply chain management and had published several articles within this field, whereas the industrial experts each held a senior position in supply chain functions. The developed framework was thereafter tested on ten different companies, some using and some not using VMI. The results from all ten companies supported the framework. The framework is divided in three parts, where different company features are to be examined; product-related features, company-related features, and supplier-related features. The company to be examined should rate each proposition on a scale in the range of 0 to 4 (0= not applicable at all, 4= highly applicable). Each answer is weighted in accordance to the result from the experts’ ratings. The final score is then calculated as the sum of all weighted answers. The sum range lies between 0 and 400, where a score beneath 200 suggests that VMI is not a suitable approach, 200-300 (i.e. 50-75 % of max value) suggests that a VMI policy should be considered, whereas a score above 300 (i.e. above 75 % of max value) suggests that VMI should be implemented. Furthermore, if a company falls in the 50-75 % range, further insight could be drawn from looking at the scores on “controllable” versus “uncontrollable” features. If the scores are low on uncontrollable features, it will be hard for the company to change in such way that would make VMI viable. The questions of the framework used in this thesis can be viewed in Appendix 2.3, and the original questions of the framework in Appendix 2.3b.
0&'.%3'*"'$(!$&#-(The Consignment Stock (CS) policy has been proven successful in the industrial reality, but could be stated to be a relatively new and limited theoretical policy (Battini et al., 2010; Valentini & Zavanella, 2003). It is based on a close collaboration between vendor and buyer, often together with a VMI policy, with the general idea to create a win-win situation through revenue sharing (Battini et al., 2010; Chen et al., 2010). The basic idea with CS is for the vendor to place some of its inventory in the customers’ warehouse, although still owned by the vendor itself (Valentini & Zavanella, 2003; Battini et al. 2010), which differs from the traditional VMI strategy. The customer is then able to purchase a specific item only when it is needed (Battini et al. 2010). In accordance to a general CS policy, the vendor guarantees the customers to continuously keep a stock level between a minimum level s, and a maximum level S, which have been agreed between the two parties (Valentini & Zavanella, 2003). Within some CS policies, the customer still has authority over timing and quantities of orders (Gümü! et al., 2008). The customer incurs the stocking costs, since they are the one owning the warehouse itself (Battini et al. 2010). Although, as mentioned, the customer does not need to bare the financial cost associated with the inventory of spare parts, since the parts are not bought until they are needed (Battini et al. 2010). Figure 2.7 illustrates when the ownership of inventory transfers occurs from vendor to customer when using RMI, compared to CS.
25
Figure 2.7. Transfer of inventory ownership in RMI compared to Consignment Stock (adopted by Gümü! et al., 2008)
Valentini and Zavanella (2003) have in their research investigated the difference in inventory costs for the supplier and customer in a typical supply agreement (i.e. RMI) compared to a CS agreement. They state the financial cost of keeping inventory becomes greater when it travels down the supply chain (Valentini & Zavanella, 2003). This implies that the total inventory cost for the entire system is lower in the CS approach than in a RMI, although some of the cost has shifted from the customer to the supplier (Valentini & Zavanella, 2003). From a customer (i.e. retailer perspective) the advantages with a CS policy are, less tied up capital in products than in a traditional inventory agreement (Battini et al. 2010). Furthermore, the risk of obsolescence shifts from the customer to the vendor in the CS strategy, and associated costs is now shared between the two parties (Battini et al. 2010). Also, the stock-out costs should be carried by both the vendor and customer in a CS policy (Battini et al. 2010). From the suppliers’ point of view, except the need of capital tied up in products when they are stored in the customers’ warehouse, the CS policy also implies benefits. Some of the most important ones concerns the possibility of transport optimisation and managing the production plan more effectively by getting information of real product consumption (Valentini & Zavanella, 2003; Gümü! et al., 2008; Battini et al., 2010).
B8"'(+(0!(.$,+$"34(*+-"(."'."(Battini et al’s (2010) research shows that by deciding on a highest constraint S of the maximum inventory level, the savings reached through a CS strategy increases as the variability in item demand increases. This is in line with Valentini and Zavanella’s (2003) findings where they state that a CS policy is especially appropriate in unstable environments with demand variability. Furthermore Battini et al. (2010) conclude that the CS approach has proven itself to be an effective strategy for consumable items with low unit price, a high level of annual consumption, with small dimensions and easy to storage.
If deciding that a CS strategy is an appropriate choice for a system, it is critical to understand how to implement it. One decision concerns if the CS approach should involve every item or only a few (Valentini & Zavanella, 2003). The level of s and S need to be decided, as well as which customers or suppliers that should be part of the CS program also need to be taken into consideration (Valentini & Zavanella, 2003). Furthermore, Valentini and Zavanella (2003) state the importance to understand relevant legal regulations as they may differ in an
26
international context. In addition, they state the importance of having an open dialogue, good communication and integrated approach between vendor and customer to succeed with a CS implementation. Another critical factor for the success of CS implementation projects is to have a well-functioning data alignment and exchange between vendor and customer (Battini et al., 2010).
0&*:%'%'3(?@;(+'9(0!(Earlier research has investigated situations where the two policies VMI and CS are combined (Gümü! et al., 2008). In fact, in many articles where the VMI policy is examined, VMI is treated as a synonym to VMI with a CS agreement. However, in cases where the combination of the two policies is examined, the combined policy is mainly defined as VMI with CS agreement or C&VMI (Gümü! et al., 2008; Lee & Ren, 2011). In C&VMI the contracts can vary a lot between different variants (Gümü! et al., 2008). Although, the main idea is to combine the positive effects of both CS and VMI to gain an even better model than the two policies provide separately. This is in line with Chen et al.’s (2010) numerical study, which shows that the profit gained when using VMI with a CS agreement, is significant compared to the use of RMI or a VMI policy without a CS agreement. Table 2.3 shows a comparison between the basic characteristics of RMI, CS and C&VMI according to Gümü! et al. (2008). Table 2.3. Comparison of the basic characteristics of RMI, CS and C&VMI
RMI CS C&VMI
Ordering decision made by C C V
Bearer of ordering cost C C V
Ownership of stock at customer C V V
Bearer of opportunity cost C V V
B8","(0(.$+'9.(<&,(#6.$&*",(+'9(?(<&,(2"'9&,(
1#9#9 LGG/6/)0.!>&05,*)%!4)5?&05)!Efficient consumer response (ECR) was developed in 1993 (Wang, Heng & Chau, 2007) in order to “optimize the grocery supply chain, minimizing inventory levels and optimize product availability” (Wood, 1993, p. 38). Today, the policy is more widely spread and is considered a way to enhance the flow of information in supply chains, as well as improve customer focus and creation of customer value (Zairi, 1998; Svensson, 2002; Lietke & Toporowski, 2003). The policy of ECR focuses on both the supplier and demand side and consists of a bundle of strategies e.g. efficient store assessments, efficient replenishment, efficient promotion and efficient product introduction (Wood, 1993). ECR adoption requires cooperation and trust between the trading partners, and according to Kurnia and Johnston (2001) this is not likely to occur unless costs, benefits and risks are to be mutually shared. However, according to a study made of data from 39 academic projects, the most common problem of ECR is related to relationship problems and misjudgements of the complexity of change processes. This often results in problems with opportunism i.e. the two partnering companies are not equal, which may lead to a dominant part and a follower. The relationship between two uneven parties often leads to power-plays, political negotiations and distrust, and may also lead to problems
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in information sharing, goal alignment, commitment, as well as measuring and control problems. The mentioned problems often lead to mistrust between the parties and reduces the likelihood of efficient replenishment (Lietke and Toporowski, 2003). Still, according to Whipple and Russel (2007) ECR could be seen as a building block for VMI and Collaborative Planning, Forecasting and Replenishment (CPFR, which is presented below) since ECR provides them with needed collaboration and tools when managing uncertainty.
1#9#; >&((-'&%-./D)!$(-00/0CM!+&%)6-5./0C!-03!4)?()0/57*)0.!Collaborative Planning, Forecasting and Replenishment (CPFR) is a general approach that was developed from ECR-related business practices during 1997 (Wang, Heng & Chau, 2007), in order to cover collaboration strategy gaps in earlier developed models, such as VMI (Skjoett-Larsen et al., 2003; An & Fromm, 2005; Danese, 2007). The approach should be considered when an increased collaboration and information sharing between at least two participants in the supply chain is desired (Skjoett-Larsen, et al., 2003) and most suitable when it concerns highly differentiated products and a focus on long-term relationships (Skjoett-Larsen et al., 2003; Danese, 2007). In Figure 2.8 the information sharing policy in CPFR in accordance to Sari (2008) is presented.
Figure 2.8. The supply chain structure and flow characteristics in a CPFR arrangement (developed by Sari, 2008)
CPFR is usually implemented when all members in the supply chain need or want to collaborate in the development of forecasts, inventory replenishments and/or production initiatives (Aviv, 2002, as cited in Sari, 2008, p.576). A reduction of inventory is a common outcome when implementing CPFR, since it is easier to match supply with demand when using POS data in every step in the supply chain (Sari, 2008). Thereby, it is also easier to increase the customer service level (Barrat & Oliveira, 2001; Sari, 2008). Still, close collaboration in the supply chain require significant investments, and it is not easy to implement since it often require dramatic organisational changes such as the implementation of an uniform IT system within the entire supply chain, and mutual trust between all supply chain members (Barrat & Oliveira, 2001; An & Fromm, 2005; Sari, 2008). Although, CPFR should according to Neubert, Ouzrout and Bouras (2004), be seen as a first step when developing a deeper collaboration and relationship between retailer and supplier. The most common implementation failure of CPFR occurs, according to an investigation of 218 Danish companies, because of a poorly communicated vision (Skjoett-Larsen et al., 2003). Without a shared and understood vision it is more or less impossible to create enough trust, visibility and collaborative goals (Skjoett-Larsen et al., 2003), which is vital when the supply chain collaboration require synchronised data and uniformed standards for information exchange within the entire supply chain (Chopra & Meindl, 2010).
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1#9#= >&*?-%-./D)!B,**-%@!!As can been understood from earlier chapters, it exists a lot of supply chain policies in the literature, which all got their specific advantages. Table 2.4 presents a summary of the supply chain policies previously described. Table 2.4. Summary of the five identified supply chain policies
Main areas Collaboration Information
Sharing Type of Replenishment Main Advantage
RMI Often rather
low Often rather
low Retailers make forecasts and invoices the supplier
The retailer makes only decisions based on what is beneficial to them.
VMI Medium Medium
The vendor makes the inventory replenishment decisions on behalf of the customer by e.g. monitoring inventory levels and actual product withdrawal (POS data).
Increased supply chain visibility, real consumption drives forecasts, decreased stock-out risk, increased inventory turnover, decreased costs due to economies of scale, improved service performance
C&VMI High Medium
Vendor owns inventory at the retailer, replenishment based on POS data, vendor guarantees the customer to continuously keep a level of stock between a minimum level s, and a maximum level S.
Same as VMI and: The customer/retailer only needs to purchase a specific item when it is needed, possibility of transport optimisation, win-win situation.
ECR Medium Medium Up to the company to decide although focus of efficiency.
Increased end-customer focus, minimizing inventory levels and optimising product availability
CPFR High High
Forecasts are developed together in the supply chain and is based on the POS information that is shared among supply chain members
Increased supply chain collaboration, long-term relationships, reduction of inventory, real consumption drives forecasts, increased supply chain visibility among supply chain members
Sari (2008) has in his research investigated the benefits of RMI, VMI and CPFR, as well as through simulation studied when the different approaches seem beneficial to implement. Firstly, Saris results indicate that CPFR and VMI both have a large impact on supply chain performance. It also shows that the cost savings possible through the implementation of CPFR is almost twice as much as if implementing VMI (CPFR 33.9% cost savings, VMI 17.34% cost savings) in comparison to the use of RMI. Furthermore, the customer service level increased with 3.84% with CPFR, but only with 1.54% with VMI. These results imply that the
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benefits are substantially higher with CPFR than if implementing VMI, when considering total supply chain cost and customer service level (Sari, 2008).
However, Sari’s results also imply that the decision of which policy to implement in a specific company’s supply chain depends on especially three factors; capacity tightness of the plant, replenishment lead times and uncertainty in the market demand. When lead times are short and manufacturing capacity tight, the differences in benefits between CPFR and VMI are almost ignorable; especially when considering the resources required for CPFR implementation. The results also imply that when demand uncertainty is high, the benefits with VMI become much lower, whereas the difference in performance of CPFR only decreases slightly. It is however important to take into consideration that Sari’s research only considers a supply chain constructed of one member at each supply chain stage and for one single product. It is thereby a simplification of reality. Although, the results indicates important insight in the differences and benefits of CPFR and VMI compared to RMI.
!"#$%&'()"*+,-.(Connected to earlier mentioned literature, and in relation to what the focal company want to be able to achieve with the proposed supply chain change, the main areas to improve appears to be related to information, supply chain integration and inventory management and control. Thereby, the best alternative for TMHE is not to keep the current supply chain structure (a variant of RMI). Consequently, there are three policies which could be applicable on the focal company: VMI, ECR or CPFR. ECR could, as previous mentioned, be seen as a building block of both VMI and CPFR. In addition, ECR contains a broad range of strategies, which probably could be appropriate to the focal company, but requires large investment and changes. The same applies for the policy of CPFR since the aim with this policy is to increase information sharing and collaboration within the entire supply chain. The policy of VMI also focuses on the importance of information sharing and collaboration, although not in the same extent as CPFR, and thereby requires less changes and investments. To conclude, the policy that could be considered most similar and appropriate to the changes proposed and examined at the focal company appears to be VMI.
1#; !N-0-C/0C!>7-0C)!O/.7/0!B,??(@!>7-/05!Q7)! 6&*?()S! 0-.,%)! &I! 5,??(@! 67-/05N! ?-%.(@! 3,)! .&! /.5! '%&-3! 67-0C)! 56&?)! -03! 5,??(@! 67-/05!%)-67/0C! &D)%! 6&*?-0@! -03! &%C-0/5-./&0-(! '&%3)%5N! 3)*-035!*-0-C)%5! .&! /0U,/%/0C! V0&K()3C)!%)C-%3/0C! 5,66)55I,(! /*?()*)0.-./&0N! .&! *-0-C)! 67-0C)! )S)6,./&05! WM%))%! [! +&%3N! 1OOEX#! Q7/5!67-?.)%!.7)%)I&%)!6&06)%05!7&K!.&!*-0-C)*)0.!(-%C)!67-0C)!?%&Y)6.5!5,66)55I,((@#!
Greer and Ford (2009) found in their research regarding the differences between implementing supply chain changes compared to non supply chain changes (i.e. changes not including the supply chain function), that they differ significantly. Their sample under study included managers from organisations who were targets of supply chain change. The result implied that the complexity associated with supply chains and the difficulties managers have in managing change in general, could be important reasons for the lower level of implementation success among supply chain changes, compared to non-supply chain changes (Greer & Ford, 2009). The anchor model that was used during their research consisted of Lewin’s model from 1947, and was complemented and understood together with four other change models. The resulting framework is seen in Figure 2.9.
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(
Figure 2.9. Change framework (developed by Greer & Ford, 2009)
The unfreezing stage, concerning problem analysis and action planning are meant to reflect to which extent an organisation uses information to understand gaps between current and desired performance. The action plan also represents the need of expressing the desired future state into a set of goals, objectives as well as wanted behaviours. Identifying these gaps and behaviours motivates the need of change (Greer & Ford, 2009). Some additional thoughts are expressed by Wang, Heng, and Chau (2007), who state the importance of examine the company’s KPIs during this first step, since the information flow might be modified or become less achievable due to the wanted change. Secondly, they pinpoint the importance of analysing the participants’ attitude relating to operations, which might be changed. This is done in order to avoid potential conflicts. Lastly, one of the most vital parts in the first step, according to Wang, et al. (2007), is to adopt third party expert opinions regarding the transformation. This enhance the chance of successfully implemented changes since it is possible to learn from others’ experiences of success and to get help in the pre-selection of existing methods, IT-systems etc. (Wang et al., 2007).
In the movement phase, i.e. the second phase, skill development has been identified as being critical to manage change successfully. The reason is that change requires new skills (Greer & Ford, 2009). A key to successfully manage the implementation of strategic decisions that contributes to achieving strategic fit should or must come from top-management (Chopra & Meindl, 2010). One recurring problem is to overcome traditional practices at the company, which partly occur due to the human resistance to change (Partridge, 2007; Soni & Kodali, 2011). Therefore it is vital to have top-management support in large change projects (Ford, Ford & D’Amelio, 2008). Still, once a suitable strategy is formulated, it may be even more difficult to execute it. For that reason, it is equally important to involve highly skilled employees, as having a skilful execution strategy (Chopra & Meindl, 2010).
The third phase, refreezing, concerns management activities such as providing feedback and developing incentives that reinforces desired behaviour during and after the change process. All of these phases are in turn critical to manage change successfully (Greer & Ford, 2009). Thereby, trustworthiness and perceived risks are crucial since they affect decisions and outcomes of change projects, and also if collaboration and relationships between different parts will appear (Wang et al., 2007).
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1#;#" P03)%5.-03/0C!.7)!Q))3!.&!>7-0C)!Partridge (2007) state the need for change in organisations comes from three basic areas; the outside world, sources closer to home and/or from inside the organisation itself. In order to avoid a position that demands the need of reacting rapidly, organisations need to try to anticipate forces relating to each of these three areas to manage to plan and prioritise future changes. The first group, the outside world, relates to the fact that every part of the organisation could be affected by external factors, that might result in a need for change. It includes for example the risk of increases in fuel and energy costs in the future. The second group, closer to home, concerns forces associated to the specific business or industry sector, i.e. the pool of potential customers, competitors, suppliers, labour market and local conditions. The third and last group, within the organisation itself, concerns the fact that also intra organisational factors might result in a need to change. This could be caused by a new boss that might want to take the organisation in a new direction, or attempts to make the organisation more efficient by changing the current way of working. It could however also be due to the need of cutting costs and/or moving into new markets. The pressure for change affects in which manner a change is managed. Partridge (2007) explains this as the change gaining different characteristics (i.e. the speed and scope differ, as well as how the need of change is introduced and planned). He suggests that the type of change occurring could be divided in those that should be managed Top down versus Bottom up. Decisions which should be managed top down concerns strategic and restructuring decisions as well as during a merger and development programs, and are often radical in its nature, while change concerning continuous improvements, problem solving and learning, should be managed bottom up. Although, it is important to understand that even though a top down change often is radical, it does not have to be rapid. However, it often has a long-term effect on company performance. Bottom up change, is instead managed by the people actually working within the area, which are in the need of change, since these people particularly understand their specific function and their customers’ need. (Partridge, 2007)(
!"#$%&'()"*+,-.(The focal company has during the last years performed several projects in order to improve supply chain performance and adapt the supply chain to future needs. In Figure 2.10 the most recent performed projects, as well as the new approach investigated in this research, are briefly presented with regard to when they occurred, project objectives, as well as outcomes from the projects. The main projects conducted have in most cases resulted in Kaizen improvements, however also continuation projects that further examined earlier results and alternatives. An example is the Future Logistic Concept/European Distribution Center project, which examined the possibility of having one large centrally positioned European Distribution Center in Europe. A proceeding project regarded the choice to outsource the distribution or whether keeping it in house. The result implied that the distribution of spare parts was considered to be a core competency of the company, which therefore could be seen as a competitive advantage. The implementation of a European Distribution Center was therefore considered too risky, and was cancelled. Today’s project and pre-study study could thereby be seen as a continuation of the in-house alternative examined.
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Figure 2.10. The most recently performed projects regarding supply chain structure
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3 Methodology G0!.7)!I&((&K/0C!67-?.)%!.7)!*).7&3&(&C@!-03!*).7&35!,5)3!/0!.7/5!%)5)-%67!-%)!?%)5)0.)3#!G.!5.-%.5!K/.7!-!?%)5)0.-./&0!&I!.7)!&D)%-((!*).7&3&(&C@N!-03!6&0./0,)5!K/.7!3)56%/?./&05!&I!67&5)0!*).7&35#!:-5.(@N!/0!.7)!5,'67-?.)%5!<-.-!20-(@5/5!-03!8,-(/.@!&I!4)5)-%67!/.!/5!)S?(-/0)3!7&K!C-.7)%)3!3-.-!7-5!'))0!-0-(@5)3!-03!K7/67!57&%.6&*/0C5!67&5)0!*).7&3&(&C@!-03!*).7&35!)0.-/()3#!
Studying supply chains is complex, especially due to its character of affecting many functions in a company as well as different supply chain members. In this specific case, an additional complexity concerns the international context. This complexity has become common in today’s global society. Since many parts affects and are affected by the supply chain strategy chosen, it is important to gain a holistic view of the company and its functions and strategies. It is therefore suggested by literature to study and learn from other company’s successes and failures. In this research, a case study has been conducted and complemented with expert interviews and workshops. The case study concerns a study regarding the supply chain structure and management of the spare part distribution of the focal company. To collect in-depth knowledge, several methods have been used (Collis & Hussey, 2009). In Figure 3.1, the different parts included in the case study are presented, and in the following subchapters the methodology and methods are described and motivated.
(
Figure 3.1. A summary of the research methodology
9#" !>-5)!B.,3@!To increase the overall theoretical knowledge within the research area, answer the research question, and provide the focal company with recommendations, a case study has been conducted. The case study can be described as explanatory, since existing theory has been used to understand and explain the possible supply chain changes investigated (Scapens, 1990). Overall, as is illustrated in Figure 3.1 the case study contains an in-depth literature review, a focal case study at TMHE, as well as comparative external interviews and workshops with experts within supply chain management and change management.
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When conducting a case study, understanding its specific context is essential (Collis & Hussey, 2009). This could according to Collis and Hussey (2009) be difficult without knowledge about what have happened in the past and what may follow in the future. Therefore, information of the company history, including earlier projects, was to the extent possible collected during the research. Gaining this information was also considered important to understand the company strategy.
The literature review provided an overall understanding of relevant policies and theories, as well as the knowledge foundation necessary when continuing gathering company specific information (by Collis & Hussey, 2009, described as contextualising the company problem). Simultaneously as the literature preview progressed, company employees and comparative experts were interviewed. The focal case study provided information regarding the focal company. Information was gathered by following and being part of a pre-study conducted at the focal company, mainly by participating at meetings and workshops. Information was also gathered by accessing the company’s intranet, and by conducting internal interviews at different levels and functions. The project leader of the pre-study was also the authors’ supervisor at the focal company. The different manner of which information has been gathered provided a holistic view of the company and its operations. This additional made it possible to understand the different functions at the focal company and how they interact. Overall, the aim of the focal case study was to provide all information needed regarding the focal company’s current and proposed future supply chain structure, potential difficulties as well as future objectives of the focal company (i.e. the company and supply chain strategy and vision).
The external expert interviews were conducted to gain knowledge and experiences of similar change projects and supply chain structures from the industrial reality, as well as to gain theoretical expertise. In the following sections each part included in the case study are explained and motivated and are followed by the subchapters Data Analysis and Quality of Research.
9#1 !:/.)%-.,%)!4)D/)O!To increase the understanding and deeper the knowledge regarding earlier theoretical findings within areas of interest for this study, a thorough literature review was conducted. Additionally, the literature review was meant to investigate whether any existing theoretical policies could be applicable to describe the future supply chain scenario investigated by the focal company. Within the literature review, some main areas examined were supply chain management and strategy, change management, and the supply chain policies VMI, Consignment Stock (CS) and CPFR. The literature regarding these areas provided two frameworks; one concerning VMI, and one concerning the relation between supply chain strategy and important supply chain drivers. The first one provided a framework to examine a company’s readiness to implement a VMI policy, while the other provided a framework which connects a company’s competitive strategy with its supply chain strategy, and six supply chain drivers which are considered critical when structuring a company’s supply chain (Chopra & Meindl, 2010; Niranjan et al., 2012). The latter was used to describe important aspects relating to the research and provided the basis for the report structure, as well as a manner to classify the areas of difficulty identified from the interview results.
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Databases that were used during the literature review: Google Scholar, Primo, Scopus and ScienceDirect. And the most common keywords; consignment stock, vendor-managed inventory, supplier-owned inventory, supply chain management, supply chain collaboration, supply chain visibility, information sharing in supply chains, supply chain fit, supply chain integration, collaborative planning forecasting replenishment and supply chain change. The articles were selected based on relevance to the topic, number of quotations and year of publication. Since the research area is under continuous development, the latest published article provided the report with the recent findings within the subject, and thus makes the findings of this research relevant and up-to-date. However, it was also considered important to examine the main source of interesting subjects and frameworks, why also old publications were gathered.
9#9 !<-.-!>&(()6./&0!N).7&35!The major source of company specific information and employee experiences was collected at interviews with employees at the focal company. These interviews were divided into three groups: one consisting of employees within operations, which provided information regarding the daily spare part operations of the company. The second group consisted of employees and managers within the supply chain function and managers within operations, while the third group consisted of employees from top-management, who provided information regarding company strategies, vision, wanted future supply chain capabilities, as well as earlier supply chain related projects performed at the company. The groups have been numbered in accordance with the sequence in which they were conducted.
All interviews within the first and second group were conducted through face-to-face meetings, using a semi-structured approach. This in order to receive the in-depth knowledge and understanding wanted and needed (Greco, Walop, & McCarthy, 1987). There is an advantage to use face-to-face meetings during these circumstances. According to Stringfellow and Bowen (2004), it is a disadvantage to use phone or e-mail in situations when information could be sensitive, since people in general are more open to knowledge sharing during face-to-face meetings. It is also concluded by Seidman (2012) that interviews should be used when in-depth knowledge and lived experiences are wanted. These were the reasons why surveys were not conducted in this research; it would not have provided the in-depth knowledge wanted, even though such a method would have made it possible to investigate a larger number and a wider range of companies during a short time frame (Collis and Hussey, 2009). However, due to geographical difficulties, most of the interviews with top-management (i.e. the third group) appeared via Lync, a company service that manage sound transmission and provides the ability to share computer desktops with the interviewee. Thereby, for example questions and pictures could be viewed together with the interviewee to simplify explanations. An additional group of interviewees consisted of four external experts; two supply chain experts from two different companies, one PhD student within supply chain management at the Royal Institute of Technology, and one senior management consultant specialised in supply chains and supply chain change. The first two provided company specific information and experiences within supply chain management and structure. The companies were chosen due to their supply chain structure and the fact that they had recently been through a change of
36
their supply chain. The company experts were interviewed using a semi-structured approach. With the PhD student and management consultant workshops were conducted, were report material were sent in forehand and was the basis for discussion. During the interviews, both researchers were present. This made it possible for one to ensure the interviewee answered the questions and ask supplementary questions, while the other could focus on taking notes.
9#9#" F0.)%0-(!F0.)%D/)O5!R%&,?!"I!E?)%-./&05!The first group of interviews with employees at the focal company provided an understanding of the company history and its operations. A semi-structured approach with open-ended questions was used. The main questions asked during these interviews can be viewed in Appendix 3.1. The primary purpose of the interviews was to develop a dialogue with the interviewees in order to capture employee specific knowledge and opinions (Greco et al, 1987). Several employees within different business areas were interviewed to gain a holistic view of the company and its different functions, and thereby increase the validity of the result (Seidman, 2006). The first group of interviewees are summarised in a table in Appendix 3.2 and some of them were part of the pre-study project group.
9#9#1 F0.)%0-(!F0.)%D/)O5!R%&,?!1I!B,??(@!>7-/0!-03!E?)%-./&05!The interviewees in the second group were chosen due to their knowledge within supply chain operations, and/or spare parts specific operations and could be viewed in Table 3.1. The purpose was to interview employees possessing a great understanding of the products and the supply chain to be able to identify areas of difficulties related to the supply chain. Some of the interviewees were also part of the first group of interviewees and has therefore been interviewed two times, however with different focus. These interviewees are therefore labelled with an Aster (*) behind their title in the table in Appendix 3.2 and Table 3.1. Overall, the interviews were conducted to examine the company’s appropriateness to implement a VMI policy. Table 3.1. A summary of interviewees answering the VMI framework
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The interviews were structured and mainly considered a VMI readiness framework developed by Niranjan et al., (2012). The framework was sent to the interviewee in forehand and was presented and discussed during the interviews. The framework were slightly adapted by the authors to fit the specific situation investigated, and was used to complement the research findings regarding the focal company’s appropriateness to implement VMI. The framework has been described in Chapter 2.3.2 (The VMI readiness framework) and the questions asked during these interviews can be seen in Appendix 2.3 together with the original questions from the framework.
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During some interviews, managers provided information regarding earlier projects performed at the company. This information was primarily used to analyse the company’s earlier conducted development projects and relate them to the new supply chain changes investigated. It also contributed to an understanding of why or why not earlier project results have been or not been, implemented. The information regarding earlier conducted projects can be seen in the end of Chapter 2.4.
9#9#9 F0.)%0-(!F0.)%D/)O5!R%&,?!9I!H&?JN-0-C)*)0.!The third group of interviewees was conducted to gain in-depth information concerning the company strategy, mission and vision, as well as the mission, vision and strategy relating to the supply chain in the spare part distribution. The interviewees were chosen due to their knowledge of the company (i.e. relating to spare parts) and/or the supply chain strategy. Additionally, the aim was to gain an understanding regarding the connection between these areas and to identify potential problems related to the focal company’s supply chain. The interviews were semi-structured, and included the framework with the six supply chain drivers, developed by Chopra and Meindl (2010), which was sent in forehand and was explained and discussed during the interviews. Some of the interviewees had also participated in earlier conducted interviews due to their knowledge within supply chain or operations, and are therefore labelled with an Aster (*) in Table 3.2. Table 3.2. A summary of interviewees within top-management answering the supply chain framework
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By letting four employees from top-management answering the three parts of the supply chain decision-making framework, areas in need of improvements or changes could be identified. All interviewees were asked to describe the company’s future prospects, the current company vision and how it in turn affects the division Parts & Logistics and the supply chain. Further on, all interviewees described the company’s supply chain and competitive strategy, and rate supply chain performance (between 0-4) relating to the relationship between supply chain responsiveness and efficiency (0 = highly efficient, 4 = highly responsive). Two of these questions concerned how efficient/responsive the current supply chain was considered, as well as how they wanted regarding the relationship between efficiency and responsiveness to be in, what they perceived, a best future scenario. The supply chain decision-making framework can be seen in Appendix 2.2, and is described in Chapter 2.
9#9#; LX.)%0-(!LX?)%.!F0.)%D/)O5!R%&,?!;!The choice of conducting expert interviews was due to the need of in-depth information and knowledge from similar supply chain distribution practices in the industrial reality. Furthermore, these interviews were conducted to gain important aspects to consider when managing supply chain changes and to discuss relevant supply chain theories and policies.
Two companies were examined, Volvo CE and Ericsson. The choice of interviewing an expert at Ericsson was due to the changes they recently had made within their supply chain structure, as well as their use of a consignment stock agreement with some of their suppliers. Volvo CE
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was in turn chosen due to their similar supply chain structure as the focal company, and their use of a VMI policy.
The interviews were made with employees working with, and with expertise knowledge about, their company’s supply chain. The interviewees also possessed knowledge regarding important aspects to consider when executing supply chain changes. These interviews were conducted to identify why a specific supply chain structure had been implemented as well as compare similarities with the supply chain changes examined at the focal company. Each interview with these experts took approximately two hours. A summary of the notes from the meetings was sent to the interviewees at Volvo CE and Ericsson afterwards, together with complementing questions. This was to ensure no misinterpretations had been made as well as gain further knowledge about interesting areas. Furthermore, two workshops were performed with a senior management consultant with an extensive experience of supply chain management and large change projects. The purpose with the workshops was to gain general knowledge and guidance regarding supply chains, as well as within the area of change management. Information about the research, as well as report drafts, was sent in forehand, and was the basis for open discussions. The knowledge about supply chain policies and strategies were also gathered through a workshop with a PhD student within supply chain management. Also in this case a report draft was sent in forehand. The interviewed external experts are summarised in Table 3.3. Table 3.3. A summary of interviews with external experts
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9#; !<-.-!20-(@5/5!The data collected in this research is primarily qualitative, which causes a need of dividing it in a useful manner to simplify codification. Firstly, the data was divided into the three levels Strategic, Supply Chain and Operational and Operational, due to the interviewees’ different positions at the focal company. The aim of the interviews depended on position and area of knowledge, which caused different structures and questions to be used during interviews. Some questions within the Strategic and Operational level involved rankings (four questions in the supply chain decision-making framework and the VMI framework in total), which resulted in numerical data. The numerical data of each level was compiled in excel sheets, to enable comparison between the answers of the interviewees within each group. The numerical data gathered was complemented with quotations from each question and interviewee, to understand the interviewees’ way of thinking and reasoning. Identified areas of difficulty were structured in excel sheets and classified into the supply chain drivers included in Chopra and Meindl’s (2010) supply chain decision-making framework, however with the two additional categories; Supply chain strategy and Others.
After the data had been classified, it was analysed due to number of repetitive and/or similar answers within each category, as well as the amount of interviewees that had mentioned a
39
problem within a specific category. Other relevant data gathered was summarised in fluent text and complemented with quotations.
9#= !8,-(/.@!&G!4)5)-%67!Since TMHE is the focal unit of analysis in this thesis, one drawback with the study could be a limited possibility to generalise the results (Collis & Hussey, 2009). However, by complementing the findings at the focal company with findings from external expert interviews, a broader base of information could be gathered. This increased the chance to find results, which would be valuable for other companies, and thereby the ability to generalise the results.
Although, conducting only one expert interview at Volvo CE and Ericsson could be seen as a limitation in this research. If several interviewees within different functions and levels had been conducted, more in-depth knowledge concerning each case could have been gathered. Thereby, not only one employee’s opinion about the subject would have been gathered, which would have increased the validity and reliability of the results. However, due to sensitive information and company secrecy, as well as the limited amount of time for conducting the research, it turned out to be too hard to find additional employees to interview. Although, chosen interviewees had a relevant position at the companies and possessed the right knowledge to answer the questions.
The choice to use a qualitative method with in-depth interviews, together with the limited amount of time available, have led to a limitation in the number of interviews to be conducted in Group 2 and 3. Especially in Group 3, top-management, where only four managers were interviewed, and only three answered all questions. However, these four managers represented important functions at the focal company, which contributed to gaining a holistic view of the supply chain and company strategy. One additional interview was conducted with the manager of Information Technology. Unfortunately he did not consider himself to have enough knowledge to answer the questions. Although, the interview contributed to a further understanding of company functions. For this thesis it was however considered important to acquire in-depth knowledge and experiences, which could be of value when analysing the focal company. Thereby, a qualitative method was considered an appropriate choice, even though a limited number of interviews were conducted.
To gain knowledge about the focal company and understand their operations, many interviews within Group 1 were required. It provided a holistic view of the company and its supply chain and thereby increased the validity of the results (Seidman, 2006). Still, as discussed earlier, it also affected the time available for the other groups of interviewees, which was one reason why only two other companies were examined in this research. During the division of data, the authors may unintentionally have influenced the data due to previous knowledge gained from earlier conducted interviews and the literature review (Del Greco, Walop, & McCarthy, 1987). Another aspect to consider was that all interviewees did not explicitly express problems, but instead improvement possibilities, even though the questions asked concerned which problems that could be identified in the current supply chain. In addition, some interviews were conducted in Swedish, which unintentionally may have affected results since quotations, problems and areas of difficulty have been translated into English.
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4 Empirical Findings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
;#" !R%&,?!9M!B.%-.)C/6!:)D)(!!G0! .7/5! 5)6./&0! .7)! %)5,(.5! I%&*! /0.)%D/)K5! 6&03,6.)3! K/.7! .&?T*-0-C)*)0.! -%)! ?%)5)0.)3#! Q7)!U,)5./&00-/%)! ,5)3! 3,%/0C! .7)! /0.)%D/)K5! -.! .7)! 5.%-.)C/6! ()D)(! 6-0! ')! 5))0! /0! 2??)03/S! 9#9#!2(.7&,C7N!5&*)!U,)5./&05!/0!.7)!I%-*)K&%V!K)%)!5(/C7.(@!*&3/I/)3!3)?)03/0C!&0!.7)!/0.)%D/)K))5]!?&5/./&0!-.!.7)!6&*?-0@#!!!
;#"#" >&*?-0@!K/5/&0!The vision of TMHE is to be number one in the market and thereby the first choice among forklift producers in Europe. In addition, it is to be the best provider of forklift service in this region. Furthermore, the vision of Toyota Material Handling Global is to be number one in the global service business area, double the turnover and to be the undisputed leader globally with a market share of 20%, in 2020.
;#"#1 4-./0C!&G!B,??(@!>7-/0!<%/D)%5!Within Group 3, the strategic level, one of the interviewees (i.e. interviewee 11) did not answer the rating questions concerning how the interviewee perceived the capability of each supply chain driver today. The reason was that the interviewee did not consider himself to have enough detailed knowledge regarding the supply chain. Although the interviewee did rate how he perceived the current supply chain to perform today, as well as in a desirable future scenario. The grading of the questions went from 0 (highly efficient) to 4 (highly responsive). The purpose was to get the interviewees to make a trade-off between the capabilities efficiency and responsiveness, to understand which one was considered the most important capability for the company and its strategy. Hence, answering with the number 2 implied that the two capabilities were perceived as equally important. The answers concerning the current supply chain structure are summarised in Table 4.1, and the perceived best future scenario in Table 4.2. The mean value of each driver in the current supply chain compared to a desired future scenario is illustrated in Figure 4.1. Figure 4.1 also visualises the gap between the mean values of the capability of each driver in the current supply chain, compared to a desired scenario.
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Table 4.1. Rating of each driver and the total supply chain, as perceived today
Interviewee no: 8 9 10 11 Comments
Facility 2 1 1 1,3
Inventory 2,5 1 3 2,2 Can carry a bit more costs in order to be responsive (interviewee 8)
Transportation 2 1 3 2 Need to be more efficient (interviewee 8) Has a more responsive than efficient solution today… are close to the customer and delivers fast (interviewee 10)
Information 2,5 1 2 1,8 Neither highly efficient nor highly responsive. We have an integrated system but it is possible to do so much more (interviewee 10)
Sourcing 1 1 1 1
Pricing 1 2 3 2
The total supply chain 2,5 1 2,3 2 1,95
More efficient than responsive today. Maybe due to sub-optimization instead of optimizing the entire supply chain (interviewee 9)
Table 4.2. Rating of each driver and the total supply chain, as perceived in the best future scenario
Interviewee no: 8 9 10 11 Comments
Facility 2 0 1 1
Inventory 2 2 2 2
Transportation 1 2 4 2,3 Transportation need to be more responsive, since there is no need of having the same transport solution for every case (interviewee 10)
Information 2 4 3 3 Need to be much more proactive, but need to be efficient as well (interviewee 9) More responsive than today, one need to be able to get the information one needs (interviewee 10)
Sourcing 2 2 1 1,7
Pricing 2 4 2 2,7 Follow the right price of the market and what the customer wants (interviewee 9)
The total supply chain 2 2 2,5 1,5 2
Need a balanced approach in the future It is important to have a responsive supply chain, but not due to the cost of efficiency. The customers require efficiency. Overall, they need to continue to improve in all areas (interviewee 8) Need to be both highly efficient and highly responsive (interviewee 9) The model is difficult, it requires that one need to negotiate between two important capabilities (interviewee 10) Need to go towards becoming more efficient (interviewee 11)
!
!
m
m
42
!
When examining the differences in Table 4.1 and 4.2, one can see that the average score on the drivers Facilities and Inventory are the only scores that are lower in the desired future scenario, compared to the score each driver received as average in the current state. This implies a desire among the interviewees to become more efficient within these areas. Although, the average grading of the drivers only changes slightly. When examining the individual scores for the driver Facilities, only one of the interviewees desired the driver to become more efficient, while the other two were satisfied with how it works today. When instead examining the individual scores for the driver Inventory, one could see that the perception regarding the capabilities in the current supply chain differs. Although, all three interviewees expressed a desire to have an equally efficient as responsive inventory policy in the desired future state (i.e. scored as a 2). The other average scores imply a desire to change the performance of the other drivers, i.e. Transportation, Information, Sourcing and Pricing, towards becoming more responsive in the future. The individual scores of the driver Transportation shows that two of the three interviewees want the supply chain to become more responsive in a future scenario, while one want it to become more efficient. Sourcing is by all interviewees scored as being efficient (i.e. scored as a 1) in the current supply chain, and two expressed a desire for this driver to become more responsive in the future.
Information is according to the scoring the driver of which the interviewee expressed the highest desire to change (i.e. improve). The average score changes from 1,8 to 3, which implies that the interviewees want it to become much more responsive. Although, one interviewee considers it need to become slightly more efficient.
Overall, the interviewees found it hard to rate the different drivers since they expressed a desire of both being responsive and cost efficient. This could especially be understood when
Figure 4.1. Today's supply chain performance versus the performance in a best future scenario within each driver and the total supply chain, in relation to efficiency and responsiveness
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examining the score of the Total Supply Chain for the desired future scenario, which became a 2, i.e. the two capabilities are considered to be equally important in a future scenario. Although, two of the four interviewees expressed that the supply chain needs to become slightly more efficient. In general, the interviewees’ perception and scoring of the current supply chain and the desired future scenario were very similar. In addition, Figure 4.1 illustrates that Information management is the area considered to be in the need of most improvements, since it is desired to be more responsive in the future.
;#"#9 2%)-5!&G!</GG/6,(.@!F3)0./G/)3!/0!R%&,?!9M!.7)!B.%-.)C/6!:)D)(!G0!.7/5!5)6./&0N!-%)-5!&I!3/II/6,(.@!/3)0./I/)3!3,%/0C!/0.)%D/)K5!6&03,6.)3!K/.7!.&?T*-0-C)*)0.!-%)!?%)5)0.)3#!!
;9"'$%<%"9(+,"+.(&<(9%<<%#67$4(,"7+$"9($&($8"(<&#+7(#&*1+'4(Overall, the results from the interviews imply a need and desire to increase the level of integration among subsidiaries since it would induce several improvement possibilities and benefits. This was mentioned by all interviewees. Interviewee 10 expressed a need to harmonise the company and ensure the company worked similarly towards their customers, independent of brand. The interviewee also pinpointed the need to work as one united company and not sub-optimise each part. Furthermore, Interviewee 9 stated: “Consolidating warehouses will help reducing cost and increase service fill-rate. We need to be more efficient”...”meaning reducing logistics costs”...”The problem is that we have a decentralised governance structure which makes the journey very difficult since people are thinking about their own profit and loss” (Interviewee 9). Interviewee 8 expressed the importance of being both efficient and responsive and that it today “are restrictions on infrastructure” to manage this optimally; “spare parts locations and warehouses need to be strategically placed to manage deliveries” (Interviewee 8). Related to the issue of the focal company being decentralised, Interviewee 11 stated: “The different legal units result in complexity and increases costs, and thus need to be improved“. In addition, the interviewee stated it today exists an unnecessary amount of invoicing and administration within the company (i.e. between subsidiaries), and expressed a desire to be able to mainly invoice when the end customer purchases the product.
Considering the company’s competitive advantage, the interviewees expressed the need to deliver spare parts fast (Interviewee 8) and to “secure a good service level towards the customers by having spare parts available when needed” (Interviewee 9). However, a difficulty mentioned by almost all interviewees within this group was that the fill-rate today is uneven among the different subsidiaries. Because of this the interviewees expressed a need to develop uniform operations and standards at facilities and market and sales companies. In addition, Interviewee 8 mentioned that it is important to take end-customer information in account when these standards and operations are developed to be able to meet customer expectations. Each interviewee within Group 3 was during the interviews asked whether they considered it to be any problems associated with the current supply chain. A summary of the answers is illustrated in Table 4.3, while Figure 4.2 illustrates the number of interviewees who expressed at least one difficulty within a specific category.
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In Group 3, Information was considered the most important area to improve, since areas of difficulties within this category were mentioned by 75 percent of the interviewees. In addition, Information was the category with the largest number of identified problems, while problems within the areas Facilities, Inventory, Transportation and Sourcing all were mentioned by 50 percent of the interviewees. Table 4.3. Identified areas of difficulty associated with the supply chain
Information
Available information is not properly utilised (Interview 8) Information is important when making forecast etc. although it is not efficiently used in the industry (Interview 8) TMHE do not request enough volume to influence how the work towards the suppliers should be managed; thereby the suppliers do not take part of the POS information. However, this possibility exists with the larger suppliers (Interview 8) Lack of transparency cause poor proactivity concerning information sharing among supply chain members (Interview 9) Not enough central buying agreements (Interview 9) Not uniform operations or standards at the different facilities (Interview 9) The information system is only integrated downstream (Interview 9) Non-uniform nor efficient way to share information among supply chain members (Interview 10)
Facilities Today facilities are not a cost issue, but they could be in the future (Interview 8) Parts & Logistics might need to be separated from the legal entities of Production, in order to measure Parts & Logistics and Production individually (Interview 11)
Inventory Non-optimised stock levels/inventory levels (Interview 8) Lack of visibility and sub-optimisations (Interview 9)
Transportation
The costs of transportation will be affected when future costs of fuel will increase (Interview 8) Not enough transportation mode alternatives (Interview 9) Not enough transportation cost transparency, which may create ordering behaviours that increase the number of urgent orders (Interview 9)
Pricing Costs associated with maintenance need to be minimised (Interview 8)
Sourcing The importance of price and lead times will increase (Interview 10) Location and logistics are important for sourcing in the future (Interview 8)
Supply Chain Strategy The role of the Central Function in Mjölby is today unclear (Interview 9)
Figure 4.2. Number of interviewees within Group 3, the strategic level, expressing at least one problem in a category
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;#1 !R%&,?!1M!E?)%-./&0-(!:)D)(!G0! .7)! I&((&K/0C! 5,'67-?.)%N! .7)! %)5,(.! I%&*! .7)! \JG! %)-3/0)55! I%-*)K&%V! -5! K)((! -5! -%)-5! &I!3/II/6,(.@! 3/56&D)%)3! 3,%/0C! /0.)%D/)K5! -.! .7)! &?)%-./&0-(! ()D)(N! -%)! ?%)5)0.)3#! Q7)! /3)0./I/)3!?%&'()*5! -%)! 6(-55/I/)3! /0.&! .7)! 5,??(@! 67-/0! 3%/D)%5! 3)56%/')3! /0! .7)! .7)&%@! 67-?.)%N! -03!6&*?()*)0.)3!K/.7!.7)!.K&!-%)-5^!F.7)%!-03!B,??(@!>7-/0!B.%-.)C@#!
;#1#" LD-(,-./&0!&G!.7)!KNF!+%-*)O&%Z!In order to examine whether VMI could be a suitable supply chain policy to implement at the focal company, the VMI readiness framework described in chapter 2, was conducted with the interviewees included in Interview Group 2. The creators of the VMI framework claim that a score between 200 and 300 implies that an implementation of VMI should be considered, while a score above 300 implies that the company is recommended to implement a VMI policy. Each interviewee rated each of the 15 predications from 0 (not applicable) to 4 (highly applicable). In Appendix 4.1 the scoring of the seven interviewees answering the questions included in the VMI readiness framework are presented. In general, the result shows a uniform scoring, although the scoring concerning some of the questions differs. This indicates that the interviewees at the operational level have rather unified opinions regarding the company and its supply chain operations, independent of position within the company. The main result of the evaluation implies that the focal company should consider implementing VMI, since all subtotals are above 200. In addition, 70 percent of the interviewees scored above 300 points. In comparison, the representative of Volvo Construction Equipment (Volvo CE), which is a company that has implemented and integrated a VMI policy, scored 339,2 points during the interview. More about the interview conducted at Volvo CE is presented in Chapter 4.5.
The first part of the VMI readiness framework, concerning product-related features (question 1-5), contained the broadest range of answers. Question 2, 3 and 5 were however rather equally scored, with only a few dissimilarities. Although, the first question contains a very varying scoring, which indicate disagreement of whether the product is customised or not. These dissimilarities could be explained due to different focus (i.e. spare parts or forklifts) among the interviewees when answering the question, even though all questions in the beginning of the interview were stated to consider spare parts. The spare parts are usually seen as standardised, while the forklifts are customised. The fourth question also contains a broad range of answers, which may be due to the large variety of spare parts the focal company provides to its customers. Some of the interviewees separated them as spare parts with high mobility and low mobility. Spare parts with high mobility are usually considered to have a lower variance, and the ones with low mobility are usually considered to have a higher variance. Other interviewees referred to the different amount of spare parts related to the different brands, and therefore concluded the variance to be rather high.
In the second category (question 6-10) regarding the company, resulted in a rather even scoring. The interviewees fairly agreed upon every question, except question number eight. During the interviews several stated that it is possible to share information among supply chain members. In addition, most of the interviewees thought the focal company has a well-integrated information system. Still, some highlighted that the company operates in different information systems, which complicates information sharing and integration. All interviewees stated that the system could be improved.
46
The last category (question 11-15) concerns supplier related questions seen from the perspective of the focal company as supplier to the market and sales companies. This category became the most even among the answers. In general the interviewees state that the company has a good relationship with its customers (i.e. market and sales companies).
)".67$.(<,&*(0&**"'$.(96,%'3(?@;(5,+*"A&,-(;'$",2%"A.(During the interviews the interviewees answered whether they consider the information system to be well integrated within the entire supply chain. These answers were diverse, although it is the same interviewees whom perceive the information system as good as the ones who claimed it to be well integrated. Regarding how well integrated the information systems is in the supply chain, 57 percent of the interviewees answered that it is well integrated within the entire supply chain, while 30 percent stated that the supply chain is only well integrated downstream, but hardly not integrated upstream the supply chain (i.e. to the suppliers). In addition, 13 percent thought that increasing the integration level towards market and sales companies would not be of interest during further integrations of the systems, since it requires too large investments in relation to the outcome (i.e. benefits). Overall, the importance of a well-functioning information system was considered important among the interviewees. For example, one interviewee stated: “A good information system is important since information regarding when products could be
received need to be reliable, in order for the customer to be able to plan their work” (Interviewee 6)
;#1#1 2%)-5!&G!</GG/6,(.@!F3)0./G/)3!/0!R%&,?!1M!.7)!E?)%-./&0-(!:)D)(!In this subchapter, identified areas of difficulty mentioned by interviewees at the operational level are illustrated. Although this group consisted of 7 employees, the answers from only 5 interviewees are analysed in this chapter. The reason is that two of the interviewees who performed the VMI framework are already included in the difficulties identified at the strategic level. A summary of the answers is illustrated in Table 4.4. The number of interviewees in Group 2 who expressed a problem in a specific category is illustrated in Figure 4.3.
(Figure 4.3. Number of interviewees within Group 2, the operational level,
expressing at least one problem
47
As in Group 3, the strategic level, information management can within Group 2, the operational level, be identified as the category in which most interviewees mentioned at least one area of difficulty. In fact, all interviewees expressed at least one problem related to this category, which is illustrated in Figure 4.3. In addition, information was the area with largest number of identified problems, which can be understood from Table 4.4, where most difficulties concerned lack of visibility within the supply chain. The second largest category, which 80 percent of the interviewees expressed at least one area of difficulty within was inventory. The mentioned difficulties concerned; sub-optimisation of inventories in the supply chain, not optimally managed return policies, and non-optimised inventory locations. In addition, 60 percent of the interviewees expressed problems within the category transportation, which became the third largest area of difficulty. The identified problems within this category were related to the transportation policies today being inflexible. As an example, it is considered difficult to transfer spare parts directly between NWs. Table 4.4. Summary of identified areas of difficulty within Group 2
Information
Information and communication systems are different in the three entities (Interview 7) All interviewees said that the information and communication systems could be improved (All 5) The information system is only integrated downstream supply chain (Interview 6, Interview 7) The area of Parts ID was mentioned by four interviewees, but an existing problem was only mentioned by Interviewee 7 who stated that spare parts risk becoming obsolete when they are replaced by new ones Transaction costs are not properly monitored (Interview 7) The lead times are not determined within the supply chain of spare parts (Interview 7) Do not have visibility throughout the supply chain (Interview 7) All members are not integrated in the supply chain, which complicates optimisation and control of the entire supply chain (Interview 7)
Facilities The majority of all orders are received in the evening, which cause irregular workload in the inventories (Interview 6)
Inventory Inventory management sub-optimised (Interview 7, Interview 6) Non-optimised/not optimal inventory locations (Interview 6) Return policies are not optimally managed (Interview 2 & 3)
Transportation Inefficient transportation since it is not possible to ship directly between NWs. (Interview 6) Inflexible transportation logistics (Interview 2 & 3)
Supply chain strategy Not enough central control (Interview 1)
;#9 !233/./&0-(!2%)-5!&G!</GG/6,(.@!/3)0./G/)3!/0!R%&,?!"!The first group of interviews from a chronological perspective, i.e. Group 1, was mainly conducted to gain a holistic view of the company operations and its different functions. Still, some areas of difficulty were mentioned. Below the number of interviewees who has expressed a problem in a specific area of difficulty is illustrated. The identified problems are summarised in Table 4.5, and the number of interviewees that mention at least one difficulty within each category are visualised in Figure 4.4. From the result of Group 1 it can be understood that the interviewees at the market and sales company perceive that there are many areas of difficulty to consider and solve within the area of information management. Especially the level and quality of cooperation, which also is
48
related to difficulties identified within the inventory category. Furthermore, they claimed the system concerning information sharing to be insufficient, as well as the need of a better centrally managed system to support their operations (regarding e.g. inventory to be kept in the service vans).
At the central unit of the focal company, three interviewees brought up issues related to the Inventory category. The same three interviewees also stated problems categorised into the problem category Other. These problems concerned a lack of cooperation between the sales companies and the Headquarter in Mjölby, and the unnecessary amount of internal invoicing that occur between subsidiaries.
(
(
(
(
(
(
(
Figure 4.4. Summary of identified areas of difficulty in Group 1
Table 4.5. Summary of identified areas of difficulty in Group 1
Information
The different ERP systems create a complex setup (Senior in Information Technology, Parts) Undefined routines for information sharing between the market and sales companies and the Central unit, which create a gap between what the market and sales companies’ asks the customer and what the Central unit asks the market and sales company (Market and Sales company) It does not exist a system that determine and/or measure the amount of complete orders (Market and Sales company) The system considering information sharing is insufficient (Market and Sales company) Sales companies in need of a better centrally managed system to support their operations (Market and Sales company) The operations seems to be managed based on production rather than customer expectations and consumption at the market and sales company (Market and Sales company)
Inventory
Need more central support regarding what inventory to be stored in service vans (Market and Sales company) Non-optimised inventory allocation (Senior in Information Technology, Parts) Not enough usage of kits within service (Market and Sales company) Policies regarding return are not optimally managed (Information Technology, Parts) Lack of holistic view regarding inventory (Information Technology, Parts)
Supply Chain Strategy
The ability to influence the market and sales company is too low, more central control is needed (Information Technology, Parts)
Other The cooperation towards the central unit is too low. Want to increase and improve cooperation, as well as increasing the understanding of each others needs (Market and Sales company) Unnecessary amount of internal invoicing (Manager Finance), which drives costs (Finance)
49
;#; B,**-%@!&G!2%)-5!&G!</GG/6,(.@!/0!H&.-(!In Figure 4.5 a summary of the areas of difficulty identified in Group 1, 2 and 3 as well as the combined result, are illustrated.
(
Figure 4.5. Summary of identified areas of difficulty
From the result, it is evident that the drivers Information and Inventory management can be identified as the two areas in which most identified difficulties can be classified. In addition, the number of difficulties within these areas was the highest, if taking into account if the same interviewee stated several difficulties within each area. In that sense, Information management can be considered the driver in which most areas of difficulty can be found.
During the interviews conducted at the focal company, an additional finding made by the authors was that many employees were lacking a holistic view of the company and how the different functions interact and affect each other. This was however not the case with the managers that were interviewed, even though they not possessed operational details concerning the functions that were not their area of expertise. In addition their opinions and interpretations sometimes differed.
50
;#= !LX.)%0-(!F0.)%D/)O5!G0!.7)!I&((&K/0C!5,'67-?.)%N!.7)!)S.)%0-(!/0.)%D/)K5!-%)!?%)5)0.)3#!Q7)!U,)5./&05!&I!.7)!/0.)%D/)K5!-03!-!*&%)!)S.)05/D)!D)%5/&0!&I!.7)!/0.)%D/)K!-.!R%/655&0!-%)!?%)5)0.)3!/0!2??)03/S!;#1!-03!;#9#!
;#=#" [&%Z57&?!O/.7!B)0/&%!N-0-C)*)0.!>&05,(.-0.!The interviewee has long experience from both change and supply chain projects. He advocates the importance of keeping things simple, as well as the importance of examine the foundation of a problem, instead of trying to solve its symptoms.
When a company investigates the possibility to implement changes within the supply chain, it is important to early know the reason for it. What do the company want to achieve? Why this particular change? A similar approach is applicable when it comes to inventory. Why do the company have inventory? What are the benefits? How does it help the company in fulfilling its strategy? Competitive strategy? The need of inventory needs to be motivated and well related to the company strategy, otherwise keeping inventory will only contribute to cost and capital tied-up. Managing this requires an understanding of what the customers’ value and require.
The primary issue in a supply chain concerns the ability to see where inventory is geographically located. Thereafter, decisions regarding ownership could be addressed. Furthermore, the use of POS data as well as sharing this information to all supply chain members, especially the suppliers, is crucial. The reason is that suppliers often could be seen as bottlenecks within the system, since their lead-time often represents the longest. This results in capabilities to develop a good collaboration and readiness at the supplier stage, which from a global perspective results in shortened lead-time. In addition, it is important to realise that the usage of forecasts is not recommended when dealing with short lead-times (i.e. approximately 2 weeks), since they take time to develop. To achieve increased visibility throughout the supply chain, a preferred solution is to develop one central system/unit to manage inventory control, visibility etc., although keeping inventory at the number of locations and optimal locations, which seems appropriate for the specific case. Related to the importance of sharing POS data with all members in the supply chain, the interviewee also stresses the need of a uniform ERP system. Without using the same IT system, the information sharing risks becoming complex and difficult to manage. Overall, improved visibility throughout the supply chain results in trust among supply chain members, which contribute to a better functioning supply chain from a total perspective.
;#=#1 F0.)%D/)O!O/.7!R(&'-(!</5.%/',./&0!>)0.%)!N-0-C)%!-.!L%/655&0!R%/655&0! /5! -! (-%C)! /0.)%0-./&0-(! *-0,I-6.,%/0C! 6&*?-0@! .7-.! ?%&D/3)5! .)()6&**,0/6-./&05!)U,/?*)0.!-03!5)%D/6)5!.&!*&'/()!-03!I/S)3!&?)%-.&%5#!<,%/0C!.7)!(-5.!"=!@)-%5N!R%/655&0!7-5!'))0!.7%&,C7! -! (-%C)! 67-0C)! &I! .7)/%! 5,??(@! 67-/0#! 20! /0.)%D/)K! K-5! .7)%)I&%)! 6&03,6.)3! K/.7! .7)!</5.%/',./&0!>)0.%)!J-0-C)%!-.!R%/655&0N!_/5.-N!BK)3)0#!
=8"(.61174(#8+%'(.$,6#$6,"(&<(C,%#..&'(Approximately 10-15 years ago, the logistics/distribution operation of Ericsson was outsourced with the aim to minimise costs. However, the result was not as good as they had
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expected, especially concerning global volume and lead-time optimisation. This resulted in a need for changes in the supply chain.
Before the change, all orders were centrally consolidated in Sweden with a relatively long lead-time as consequence (15-20 weeks). The long lead-time contributed to a low level of trust at the local sales companies, which resulted in orders to be made on speculation for the sales companies to manage their customer demands. This caused products to be allocated, which in turn resulted in a high level of capital tied up in products as well as a low material and product turnover, especially at local sales companies, were an unnecessarily large inventory was kept due to the low level of trust towards the central units ability to deliver the products. This resulted in an increased amount of capital tied up in products within the entire supply chain.
Instead a strategy with hubs or Ericsson Distribution Centres (EDCs) was developed. The EDCs were established in Singapore, Shanghai, Panama, Dubai and Mexico. Their locations were mainly chosen due to where global transportation hubs already were located as well as where the customers had the highest density. The new supply chain structure was a prerequisite to be able to segment the supply chain and to develop flexibility by delaying the point where a product became customer specific. This implies that the local sales companies place orders towards their specific EDC, instead of everyone ordering through Sweden. This has resulted in a largely reduced lead-time, which in turn resulted in prerequisites for increasing the trust between supply chain members. Today, this has resulted in increased flexibility, increased customer satisfaction, as well as a lower level of capital tied up. All products located at these hubs are owned by EAB until the goods are picked, packed and shipped to a specific customer. In addition, goods are not bought or sold when transferred between EDC’s; instead a transfer order is established. These transfer orders between EDC’s mainly comes from the central unit, although transfer orders can also be established directly between EDC’s. Due to the possibility to buy larger batch sizes to the EDC’s compared to the local sales companies, the new supply chain structure resulted in the possibility to reduce costs through economies of scale. Furthermore, this made it possible to tie local suppliers to the EDC’s.
The change resulted in shorter lead times and decreases in costs, which in turn contributed to a higher trust towards EAB and the EDC’s. This entailed a decrease of inventory costs by 50% and transportation costs by 30%. The reason was due to the possibility to plan transportations better, and only send fully loaded containers to the EDC’s.
The level of flexibility in the former structure was very low, especially when parts got stuck in the outer supply chain, which often resulted in parts becoming obsolete. This resulted in a need to produce new products to other customers, although the product already existed as inventory, however, at the “wrong” place. From a cost perspective it was therefore important to ensure the inventory at local sales companies was minimised. Furthermore, since the use of EDC’s has resulted in the point of sales now being positioned in the downstream supply chain, has contributed to parts no longer getting stuck at sales companies as much as in the former supply chain structure.
The reason for the large changes was in a sense forced up on the company since they were in desperate need to lower total costs to survive on the market. The EDC structure has provided a better flow of goods all the way in the upstream supply chain, since unnecessary inventory throughout supply chain members has been able to be removed or decreased. Today, one is
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trying to decrease the number of suppliers used for different products in order to increase the order amount, and thereby receive the benefits of economies of scale.
@+'+3%'3(08+'3"(Change projects as the one performed at Ericsson takes a long time to execute. Furthermore, such large changes are hard to motivate. A distinct vision of where the company wants to be, i.e. what benefits that should be achieved, is therefore crucial to succeed with the transformation. In addition, it is important to be able to communicate this vision clearly to everyone to ensure everyone involved is on the same track.
Although, that the change was necessary for EAB became clear after the notation of the global distribution and logistics costs to exceed the cost of production. This trend would in addition increase due to increased fuel and energy costs in the future. In general, the understanding of the current situation and future impact on the company, as well as the desired future scenario and motivation to change, need to be well grounded in the company before the transformation begins. Furthermore, it needs to be well described and documented in a distinct top/down vision, to avoid protracted internal politics and frustration further on in the process.
;#=#9 F0.)%D/)O!O/.7!</%)6.&%!&G!R(&'-(!:&C/5./65!-.!K&(D&!>&05.%,6./&0!L\,/?*)0.!G0! &%3)%! .&! C).! I,%.7)%! V0&K()3C)! -03! 3))?)%! .7)! ,03)%5.-03/0C! &I! .7)! 5,??(@! 67-/0! ?&(/6@! \JG!I%&*! .7)! /03,5.%/-(! %)-(/.@N! -0! /0.)%D/)K!K-5! 6&03,6.)3!K/.7! .7)! </%)6.&%! &I! M(&'-(! :&C/5./65N! -.!\&(D&! >&05.%,6./&0! RU,/?*)0.! /0! R5V/(5.,0-N! BK)3)0#! Q7)! I&((&K/0C! .)S.! /5! -! 5,**-%@! &I! .7)!/0.)%D/)K#!
Volvo Construction Equipment (Volvo CE) is a global company which develop, manufacture and markets construction related equipment e.g. haulers and excavators. In general, Volvo CE has two ways of ordering spare parts; by their web shop (which is primarily used for emergency orders) and through their MMI (Manufacture Managed Inventory). To simplify the technical solution: MMI connects the company’s ERP systems and manages all in and out coming order lines. The MMI system automatically determines which warehouse each order should be sent, due to customer location or spare part ordered.
=8"(.61174(#8+%'(.$,6#$6,"(&<(?&72&(0C(Today, the supply chain structure of Volvo CE is based on one global central warehouse and several regional warehouses, for each type of product. These warehouses are complemented with inventory stored at the sales companies. Each week, order proposals are sent to each sales company (subsidiaries to Volvo CE) and independent dealer together with order transfer proposals between dealers within the same geographical area using the same distributor. Thereby, all dealers get proposals from a central entity, however they can choose to change the order partly (on specific order lines) or entirely. The rate of accepted orders is measured with the aim to keep a high acceptance rate. Therefore, Volvo CE helps their dealers with returns to encourage the dealers to accept the order suggestions. In addition the central unit could propose transfers of unused products to other distributors if needed.
In the MMI system, the central unit gains information regarding all; inventory levels, replenishment order, replenishment suggestion, today’s orders, continued order, order-refill history, stock analysis (overstock, healthy, obsolete) within the company, regardless of
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location. Thereby it is possible to keep track of incomplete orders and transfer missing spare parts from another closely located warehouse. This is a rather common operation, and due the close relationship between the dealers, rush-orders (or emergency orders) could be performed faster than if they were needed to be transported from the central warehouse. Still, when such transfer occurs, a purchase order is created since the different dealers are own legal entities. However, the high number of spare parts transferred between dealers highlights the importance of visibility in the supply chain, which in addition is considered a very important corporate KPI at Volvo CE.
When deciding the level of inventory, Volvo CE uses forecasts. They pinpoint the importance of using POS data, which they receive from their dealers, regional warehouses, and central warehouses. At the moment, Volvo CE is globally implementing a uniform ERP system, one region/warehouse at the time (in order to reduce the risk with the transformation). The reason for only having one ERP system is to decrease the running cost and cost of maintenance of the system.
@+'+3%'3(08+'3"(The vision when the MMI policy was implemented was to increase the service level of the sales companies and dealers, and thereby increase the sales. During this period, Volvo CE had too many emergency orders, which they wanted to reduce. The reason was that an emergency order line costs approximately 4,5 times more to manage than an ordinary replenishment order line. The reduction of emergency orders also reduced transportation costs as well as the amount of returns. Still, implementing MMI has taken many years and in the meantime other things have happened which have affected the supply chain. Thereby, it is hard to distinguish the actual outcome of this separate project. However, one of the major improvements with the transformation is the inventory turnover rate, which has increased from 1,5 to 2,5 times in almost all MMI attached dealers who follow the order line proposals.
The choice to implement a VMI policy was due to the earlier complex and mediocre inventory management, with too high obsolescence and emergency order costs. Today the MMI system provides a global visibility within the supply chain, which support transfers between dealers and thereby increase the “uptime” on the spare parts.
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;#A !B,**-%@!&G!L*?/%/6-(!+/03/0C5!=8%.( ."#$%&'( 1,&2%9".( +'( %776.$,+$%2"( &2",2%"A( &<( $8"( -"4( <%'9%'3.( <,&*( "+#8( 1+,$( 1,"."'$"9( %'( $8"(#8+1$",(C*1%,%#+7(5%'9%'3.D(
(
Figure 4.6. Key findings identified
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5 Discussion G0!.7)!I&((&K/0C!67-?.)%!.7)!3/II)%)0.!%)5,(.5!I%&*!.7)!(/.)%-.,%)!-03!)*?/%/6-(!5.,3@!-%)!3/56,55)3N!/06(,3/0C!.7)!I/03/0C5!%)(-.)3!.&!)-67!&I!.7)!.7%))!5,'TU,)%/)5#!Q7)%)-I.)%!.7)!5,??(@!67-/0!3)6/5/&0T*-V/0C! I%-*)K&%V! 3)D)(&?)3! '@! >7&?%-! -03!J)/03(! W1O"OX! -%)! 3/56,55)3! -03! )S.)03)3#! +/0-((@!5&,%6)!6%/./6/5*!%)(-.)3!.&!.7)!5.,3@!/5!?%)5)0.)3#!!!!The aim of this thesis is to evaluate how supply chain performance can be improved in an international setting. The research has particularly concerned examining the current supply chain and potential areas of difficulty in an international manufacturing company’s distribution of spare parts. This to investigate the need to change and whether the proposed changes investigated by the company could result in desired benefits in the future, which is in line with change management literature. In general, one can from earlier research understand the importance of supply chain integration, including collaboration and information sharing among supply chain members, to manage supply chains effectively in today’s complex and global setting. The need to acquire these supply chain capabilities, together with the benefits when optimising inventory levels in the supply chain from a global perspective (i.e. managed by one single unit) has resulted in the development of several supply chain policies, philosophies and tools. By identifying areas of difficulty in the focal company’s current supply chain, and examining solutions implemented at other international manufacturing companies, the authors have examined which of some possible identified supply chain policies that could suit the focal company and help them improve supply chain performance. Related to this an additional area examined relates to how to successfully manage and motivate supply chain changes.
=#" B,'J\,)%@!"I!F3)0./G/6-./&0!&G!N-/0!2%)-5!&G!</GG/6,(.@!The results from conducted interviews imply that Information and Inventory management are the areas that most interviewees have expressed problems within. Among the interviews conducted with employees at the focal company, Group 3, concerning the strategic level, was the one where the widest range of areas of difficulty was identified. Information was however considered the most important area to improve, since problems within this category were mentioned by 75 percent of the interviewees. The result correlated with the result from the supply chain and operational level (i.e. Group 2), where 100 percent of the interviewees brought up problems relating to Information management, and 80 percent within Inventory management. In addition, in both these groups Information was the category with the largest number of identified problems. The result from Group 1, within operations, differed however slightly from the other two groups; even though problems concerning information and inventory management were included in the top three identified areas in need of improvements. Three interviewees stated problems categorised in the category Other, which thereby became the category including most identified problems within this group. The identified problems within this category concerned lack of cooperation between the market and sales company and the central unit in Mjölby, and the unnecessary number of internal invoicing occurring between subsidiaries. Since only two employees within one market and sales company were interviewed, it is hard to draw any conclusions whether other market and sales companies’ also wishes to increase cooperation towards the central unit. However, the result was interesting since most
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employees at the central unit thought the market and sales companies would have a negative attitude of becoming more centrally dependant. Even though collaboration and cooperation were classified in the area Other, they could from literature findings be considered closely related to the areas of information and inventory management.
In total, one could conclude that most areas of difficulty identified relate to the category information. Furthermore, the largest number of employees who expressed at least one problem within a specific area also relates to information management. The second largest category concerns Inventory management. In general, the different groups of interviewees appear to have similar interpretations regarding problems occurring in the current supply chain. The result is in line with the literature findings, were information sharing and collaboration among supply chain members are considered critical for supply chain success, and therefore something an increasing number of companies focus on. Inventory management has also received a great deal of attention in literature, and has in addition a close relation to information sharing to be managed successfully. Overall, the importance of information sharing has become generally accepted in the literature, with the main objective to increase supply chain visibility and cooperation to improve the performance of the entire supply chain. In addition, Barratt and Oke (2007) state the importance of shared information to be accurate, trusted, timely, useful, and in a readily usable format. Since many of the interviewees are of the opinion that the information system could be improved, together with the many problems associated with the information management area, the information shared in today’s supply chain might need to be evaluated and improved. For example, the focal company should consider sharing POS data, since it in literature is considered critical to manage supply chains successfully. In addition, focusing on improving information sharing and visibility among supply chain members has been considered a successful approach to improve supply chain performance at Volvo CE. The increased visibility (of e.g. inventory levels and order suggestions) has contributed to increased trust towards the central unit. Thereby, most of their sales companies today follow the central unit’s inventory recommendations. This implies that increased information sharing and visibility, improves the level of trust between supply chain members, which results in improved supply chain performance. This is in accordance with findings made at Ericsson, were lack of trust was one of the reasons for the unnecessary amount of inventory kept in each supply chain stage. Their solution also included increasing visibility of inventory levels, however through the development of central hubs owned by Ericsson (i.e. EDCs). The new supply chain structure resulted in decreased lead-times by delaying the point where a product becomes customer specific (i.e. often located in relation to the decoupling point), which made it possible to focus on being lean in the upstream supply chain, while responsive in the downstream part. The decreased lead-times were one of the main reasons for increased trust to appear, which resulted in lower inventory levels in the downstream supply chain. Gaining such a focus is in accordance with the focal company’s values and may be improved by expanding the use of regional distribution centres, as the one in Antwerp. The development of a regionalised supply chain structure of inventory locations, in place of the national ones in operation today, is also recommended by the senior management consultant. This regionalisation is especially recommended to concern spare parts with low and uncertain demand. Additionally, by having one legal owner of inventory located at CWs (and possibly future developed Regional Distribution Centres), desired benefits such as decreased invoicing within the company, and simplified transfer of spare parts between warehouses could be
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gained. A regionalised distribution structure would also make it possible to delay the point where the supply chain focuses on being responsive. Thereby the focus of being efficient can be stretched further down in the supply chain, although still highly responsive towards end customers. This induces the possibility to lower supply chain costs. Ericsson is one example where these benefits have arisen. The usage of one single owner of inventory is in addition strongly promoted in the literature as well as by the consultancy expert.
When comparing the identified areas of difficulty with the ratings concerning how top management rated their perceived performance of the current supply chain, with the performance desired in a best future scenario, an interesting finding occurred. Firstly, the category that has the largest gap between how it is considered to perform today compared to in a desired future scenario (related to the capabilities efficiency and responsiveness), is information. This result corresponds to the many problems and improvements potentials identified within this category, and therefore indicates a need for change within this area. However, there seems not to be any correlation between the desire to change the driver Inventory, and the number of problem areas associated with this category. It appears as top management are considering this supply chain driver to perform at a satisfactory level, despite the fact that it is the area were the second largest number of problems have been identified in this research. Although, any conclusions is considered hard to make due to the small number of interviewees within top-management and since the interviewees might have different perceptions regarding the desired future scenario. The results therefore instead imply that there might be a need for the company to formulate and communicate their vision more clearly.
=#1 B,'J\,)%@!1I!>7&&5/0C!B,??(@!>7-/0!$&(/6@!When Information management is considered a main problem within a supply chain, it will, in accordance with literature, in some manner affect the other supply chain drivers and the collaboration between supply chain members. In order to increase collaboration and coordination within the supply chain, sharing the right information with the supply chain members, is of great importance to enhance supply chain performance. Thereby it is essential to have a supply chain policy that supports the actual need of the company at hand. In this thesis four supply chain policies, which more or less concern four different levels of integration and collaboration between supply chain members, have been examined and compared. RMI constitutes the lowest level of integration and collaboration, since each member optimises their own part of the chain. Thereby, RMI could be used to describe the focal company’s current supply chain. This is however not considered an appropriate future alternative, since it is neither supported by the focal company’s supply chain vision, nor by the literature or experts, and thereby not the authors of this thesis.
ECR constitutes a supply chain policy, which advocates information sharing, and aims to increase the amount of shared information between supply chain members to provide value to end customers. However, ECR contains a broad range of strategies, which all cause a need of large investments when they are implemented. The need of large investments is also the case of CPFR, which represents the supply chain policy advocating the highest (i.e. fourth) level of collaboration and information sharing investigated in this thesis.
VMI, the third level of supply chain integration, through collaboration and information sharing among supply chain members, mainly involves inventory replenishment decisions.
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Thereby VMI concerns decisions regarding both information and inventory management; the two main areas of difficulty identified at the focal company. VMI only affects one supply chain stage, usually between the retailer (customer) and distributor (vendor), compared to CPFR, which ordinary affects all stages and members in the supply chain. Thereby, VMI requires smaller implementations and thereby less investment than CPFR to improve the level of collaboration and increase the amount of POS data to be shared between chosen supply chain members. Furthermore, a VMI policy requires less active efforts from the customer concerning orders and inventory management, since the supplier provides these services. Instead the market and sales companies can participate in an increased collaboration and are provided with increased support concerning inventory management, without enhanced workload. This is desired by the employees interviewed at the market and sales company. In addition, a VMI policy would increase the amount of inventory management control, which is requested by interviewees at the Headquarter. Because of the above mentioned, the authors conclude that VMI according to literature, appear to be the most suitable policy to implement at the focal company. Still, to utilize available advantages related to the sharing of POS data, Sari (2008) recommends the implementation of CPFR. In accordance with the CPFR policy, all members should continuously take part of the same information, and jointly develop forecasts and optimise inventory levels for the entire supply chain. The authors of this thesis therefore suggests that the focal company should strive towards achieving a CPFR policy as a future alternative, especially since the bottleneck of a supply chain according to the senior management consultant and literature, is located at the manufacturer. If POS data is shared with every member in the supply chain, the manufacturers are able to manage their inventory and operations the moment a customer buys a part. The usage of, and relying on POS data within the supply chain is promoted by both literature and the senior management consultant, as well as by the interviewee at Volvo Construction Equipment (Volvo CE). The reason is that it underpins closer collaboration within the supply chain and thereby improves responsiveness and customer service levels. Although, it is important to highlight that it might not be economically valid to involve every supply chain member in the specific case investigated. In addition, Volvo CE, which is a company with similar company structure and type of customers as the focal company, is very pleased with their VMI policy entitled Manufacturer Managed Inventory, since it has been proven successful. Although, increasing collaboration and information sharing with larger suppliers, as well as CWs and NWs is recommended. The largest difference between CPFR and VMI is that CPFR can reduce the amount of inventory needed from a total supply chain perspective and therefore reduce the amount of capital tied up, even though the level of responsiveness is rather equal between the two policies. Therefore, the decision of which of these supply chain policies to use mainly concerns how comprehensive the collaboration within the supply chain is desired to be in the future. Either way, the authors consider a VMI policy as a good start for the focal company and it enables further collaboration within the supply chain in the future. In addition, the changes needed to implement a VMI policy at the focal company is considered rather small, since it today only are the CWs that do not possess the same ERP system.
Another advantage with VMI is the possibility to complement the policy with an agreement which state the supplier as legal owner of all spare parts at the customers warehouse; a vendor-managed inventory with consignment stock agreement. With such a policy the focal
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company has the opportunity to transfer spare parts between their CWs in Europe without unnecessary internal invoicing. The reason is that the spare parts kept at each warehouse would have the same legal owner, regardless of physical location. A consignment stock agreement could in the future also be used at NWs to create an opportunity to transfer spare parts between all warehouses. This might decrease the number of specific spare parts becoming obsolete due to low turnover, and also simplifies inventory optimisation. However, if a consignment stock agreement is used, it is according to literature critical to have an open dialogue, good communication, as well as a high level of integration between the vendor and customer to succeed with the implementation. In addition, Battini et al. (2010) mentioned that a well-functioning data alignment and exchange is critical. This is supported by the senior management consultant, who states an uniform ERP system as an important prerequisite for a well-functioning information sharing system and the ability to transfer spare parts between warehouses, without internal invoicing. Otherwise, it will be hard to share the information needed with supply chain members. This is also supported by the literature were information technology is considered an important enabler of information sharing. Therefore, the pre-study conducted at the focal company, which evaluates whether it is possible to implement a common ERP system at the three CWs, seems as a good start if increased collaboration, visibility and thereby integration, are desired capabilities to increase supply chain performance.
=8"(?@;(<,+*"A&,-(The result from the VMI readiness framework conducted with employees at the focal company shows that approximately 70 percent of the interviewees answered the questions in a manner that state VMI as an appropriate policy to implement at the focal company. The remaining 30 percent scored in the upper half of the spectrum between 200 and 300, which indicate that implementing VMI should be thoroughly considered. Together with findings from literature and Volvo CE, the authors therefore conclude that VMI is appropriate to implement at the focal company. Especially since VMI could solve the main problems identified in the focal company’s current supply chain, as well as provides a solution which supports gaining one legal owner of inventory located at CWs. The original questions in the VMI readiness framework were however not formulated to evaluate supply chain members in the downstream supply chain. Therefore, in order to primarily examine the relationship between the CWs and NWs (downstream), a few questions needed to be slightly modified before the interviews were conducted. Due to this, some questions concerned both an upstream and downstream supply chain perspective, i.e. two ratings were made on one single question. These questions concerned the possibility to develop a closer relationship with suppliers (i.e. upstream), and thereby the possibility to implement a VMI policy also in that specific supply chain stage. Although, the rating related to upstream suppliers, were not included when the final scoring was calculated.
The result from the VMI framework should not be stated as the only motive to change, since it as most developed models has its drawbacks. As an example, the developers of the VMI framework pinpoints that the framework has not yet been thoroughly verified. Although, the framework was in addition conducted with the representative at Volvo CE to enable evaluation of the framework, as well as be able to compare the result with the result gained at the focal company. Volvo CE is as earlier mentioned a company that has implemented an adjusted version of VMI, by them entitled MMI. Since the final score from that interview was
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339, the framework suggests that VMI is suitable and should be implemented. This is in line with the result found by the authors who developed the framework, since such a policy already has been implemented. Thereby, the result from Volvo CE could be stated to have verified the framework further.
=#9 B,'J\,)%@!9I!$%)%)\,/5/.)5!.&!N-0-C)!>7-0C)!O/.7/0!B,??(@!>7-/05!Many researchers claim that change management within supply chains is complex, mainly because it concerns many functions within a company, but also many different supply chain members. The global society of today does not make the task any easier. From conducting this research, the authors cannot do else than agree, and it is not difficult to understand that the level of implementation success is lower in change projects concerning supply chains compared to non-supply chain changes, as argued by Greer and Ford (2009).
The authors of this thesis have therefore investigated whether any prerequisites of how to manage supply chain change successfully could be identified. The findings from conducting interviews at two large international manufacturing companies, as well as workshops with a senior management consultant, pointed in the same direction. An important prerequisite for managing changes within supply chains successfully, is the development of a distinct vision of what benefits that should be achieved. It is also important this vision is thoroughly communicated to everyone to become well founded in the company. Otherwise there is a risk of increasing frustration and tension during the transformation. The findings seem to be in accordance with literature. For example Greer and Ford (2009) state the importance of before a change conducting a problem analysis to understand the gap between the current and desired performance. They also state that it includes expressing the desired state into a set of goals, objectives and wanted behaviours. This is by the authors of this thesis interpreted as defining a detailed vision.
Supply chain decisions affects many different functions and members, and thereby many individuals. Managing changes within supply chains therefore requires good managerial skills to unify these individuals and ensure they strive towards the same organisational goals. Developing a distinct and well-communicated vision could therefore simplify the justification and acceptance of supply chain changes. Although, the individual aspect is complex and requires large efforts and therefore often results in change projects taking longer time than predicted. In addition, large supply chain changes are expensive to implement which probably contributes to the difficulties associated with decision-making. Even though this is a critical area when it comes to manage change successfully, a more thorough understanding of the individual and organisational impact of change success is excluded in this research.
Partridge (2007) states the need of understanding the reason for change, and in addition the importance for a company to avoid getting in a position that demands a need of reacting rapidly. Partridge therefore advocates the importance to anticipate forces that might result in a need of change in the future. Overall, the ratings made by top management imply a general satisfaction with the focal company’s current supply chain performance (concerning the level of responsiveness versus cost). This, together with the findings made from the other interviews conducted with employees at the focal company, implies that the current supply chain operations overall are functioning well. This suggests that, compared to Ericsson, the focal company is not in need of acting quickly to manage operations or to stay competitive. This should in accordance with Partridge (2007) be considered positive, since it makes it
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possible for the company to thoroughly investigate which changes that might be most appropriate for the company to gain a sustainable supply chain that improves company performance in the future. The authors of this thesis are of the opinion that the need for change at the focal company could be classified into two of the three groups promoted by Partridge (2007) regarding the need to change; because of the outside world and within the organisation itself. The first group relates to the need to develop a responsive supply chain, however still ensuring costs associated with transportation are kept on an acceptable level despite increases in fuel costs in the future. The other group could instead be associated with the need to change because of the merger between Toyota and BT, since the company not yet could be considered fully integrated at all levels and functions of the company. This implies there is a need of changing the current way of working, in order to take advantage of improvement possibilities that have arisen because of the merger. These possibilities could result in a competitive advantage through the development of a sustainable and integrated supply chain strategy and structure. Since the change concerns the strategic level, it should in accordance with Partridge (2007) be described as radical, since it will have a long-term effect on company performance. It should therefore be managed top down. This was also the case when the large supply chain changes at Ericsson were initiated.
As have been understood from the expert interviews, and corresponds to the literature findings, it takes long time to execute changes within supply chains. This, together with its nature of being complex, could be considered the main reasons why the result after implementing supply chain changes is hard to measure. It is therefore hard to evaluate whether assumed benefits with a transformation have been achieved after conducting the change. By thoroughly expressing desired achievements with a change in forehand, it might become easier to evaluate the actual result.
=#; LD-(,-./&0!&G!.7)!B,??(@!>7-/0!<)6/5/&0JN-Z/0C!+%-*)O&%Z!In the beginning of the theory chapter, the framework developed by Chopra and Meindl (2010) was compared to a model developed by Hugos (2006), which resulted in the usage of the first one in this thesis. Thereby, the main part of the theory chapter was structured to include the different parts in the supply chain decision-making framework developed by Chopra and Meindl (2010). The reason for using the chosen framework was due to its focus of ensuring the relations between company strategy, supply chain strategy and structure, as well as six important supply chain drivers. These relations were by the authors considered critical to ensure keeping a holistic view throughout the work. The use of the supply chain decision-making framework, as with most models developed, has however brought some constraints to the conducted research.
Firstly, the framework’s six supply chain drivers may have excluded areas of difficulty. One area that by the authors has been concluded to have an impact when choosing supply chain structure and performance is Legal. This area is considered important in this specific case, since the focal company examines the possibility of having one legal owner of inventory located at the CWs, each located in different countries. In addition, legal aspects may have a higher impact on today’s supply chains since they are facing a more global environment than before. Legal is therefore considered necessary to add to the earlier three cross-functional drivers in the supply chain decision-making framework for it to be applicable in today’s
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international context, which is illustrated in Figure 5.1. As far as the authors know, legal aspects seem not to have gained any particular attention in earlier supply chain related research, perhaps because it is considered to relate to other research areas. It might also be due to the opinion that it is only needed to be considered in a later step when evaluating supply chain changes, i.e. the implementations phase. However, due to the fact that supply chains today reaches over company and country borders, the authors of this thesis are of the opinion that this aspect need to be considered in an as early phase as possible. Secondly, the representative of Ericsson and the senior management consultant, as well as the examined change management literature, highlight the importance of a well established and communicated vision. Therefore, the authors suggest the supply chain decision-making framework should be complemented with a Vision perspective. Complementing the framework with the vision perspective makes it better suited to be used in supply chain change projects as a method to evaluate company performance, i.e. the change needed in each driver to support the strategic level and reach the supply chain vision. The vision perspective has been added in two stages in the strategic level of the framework; Supply Chain Vision and Company Vision, which is illustrated in Figure 5.1 and in Appendix 5.1.
Today, the vision of the focal company can be stated as rather vaguely formulated. As can be seen in Section Remarks of Chapter 2.1.2, the communicated vision of Parts & Logistics is not in every aspect a clean vision, but a mix of a vision and things to improve. Since the formulation of a clear vision has been identified as a crucial aspect in this thesis, the authors recommend the focal company to evaluate and improve the current Parts & Logistics vision. This would help the supply chain function to gain a clear overall goal of what the division strives for, i.e. where they want to be in the future. In line with this, it is important to ensure the Supply Chain Vision is aligned with the Company Vision and Strategy, to secure the
Figure 5.1. Chopra & Meindl's supply chain decision-making framework expanded to include Company Vision, Supply Chain Vision and Legal
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different functions in the company strives towards the same goal and supports each other. The importance of ensuring this alignment has been identified in examined literature. By making this alignment embedded within the supply chain vision it would support employees to better understand how their specific work affects the other functions in the company. As a consequence, motivating changes within the supply chain might be easier. Besides the two missing areas identified in Chopra and Meindl’s framework, the supply chain decision-making model has provided a good way to classify identified problems. It also provided key areas to discuss during interviews, which made it easier to enter and discuss the different areas in a structured manner. Even though the areas might have restricted the thoughts of the interviewees, they also forced the interviewees to think outside their ingrained box. Furthermore, it has been possible to use the supply chain decision-making framework as a way to examine both the current and a desired future scenario, which is promoted in the change management literature. The framework developed by Chopra and Meindl could therefore be used to evaluate and identify problems and thereby be classified as a tool to help companies evaluate the unfreezing stage included in Greer and Ford’s change framework. Especially since Chopra and Meindl’s framework together with Figure 2.2 (the figure of the company strategy as a collection of the company’s different functional strategies), could be used to describe all areas of difficulty that are in need of consideration when developing or evaluating the supply chain structure. The framework could thereby also be used to investigate the possibility to change from the current to a desired supply chain structure and/or strategy. A visualisation of the developed framework is presented in Figure 5.2, and in Appendix 5.2.
Figure 5.2. A framework for evaluation of potential change projects (adopted by Chopra & Meindl, 2010)
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An area that has increased in importance during the last couple of years is sustainability. Even though this area is not directly described or discussed by the developers of the supply chain decision-making framework, it is embedded in and can therefore be discussed in relation to many of the supply chain drivers. Many areas of Environmental Sustainability, associated with supply chains, can be discussed in relation to e.g. transportation and how to locate facilities etcetera. Therefore, the potential difficulties concerning increasing fuel costs that are mentioned in Group 3 could be discussed and related to both of these two drivers. The same applies for Social Sustainability and Responsibility, which can be discussed in relation to Information, Sourcing and Facilities. Thereby, the supply chain decision-making framework is plausible to use even in a global context where sustainability and/or Corporate Social Responsibility is of great importance.
=#= B&,%6)!>%/./6/5*!In this thesis, the main part of the interviews was conducted with employees at the central unit. This has contributed to a central perspective in this research, and the provided recommendations are based on problems mainly identified at interviews conducted at the central unit. To gain the holistic view wanted, additional interviews at market and sales companies would have been needed. In addition, service technicians should also have been added in order for the research to include all service operations.
One of the limitations of this thesis is that it solely includes international manufacturing companies. This has affected the result by only providing the research with supply chain structures commonly used in large manufacturing companies. As a consequence, only areas of difficulty within this context have been identified. Instead it would have been possible to compare the focal company with companies in other industries. However, in order to provide the focal company with recommendations, it was considered important to examine companies within a similar context and supply chain structure. It was also considered important to examine companies that had been through a similar supply chain change to gain knowledge regarding other companies’ successes and failures. An additional area to consider is the fast changing research area regarding Supply Chain Management. Since the concept is considered complex, and also relatively new and trendy, it is continuously developed. It has therefore been considered important to find and use the most recently published research. Although, it is hard to evaluate whether published research is still valid and up-to-date.
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6 Conclusions and Recommendations G0! .7)! I&((&K/0C! 67-?.)%N! .7)! I/03/0C5! /0! .7/5! .7)5/5! -%)! I/%5.! 5,**-%/5)3! /0! 6&06(,5/&05! -03!%)6&**)03-./&05! .&! .7)! I&6-(! 6&*?-0@! /0D)5./C-.)3#! Q7)%)-I.)%! )-67! 5,'TU,)%@! -03! .7)! *-/0!%)5)-%67! U,)5./&0! -%)! -05K)%)3! -03! 6&06(,5/&05! %)C-%3/0C! .7)! 5,??(@! 67-/0! %)5)-%67! -%)-! /0!C)0)%-(!-%)!3%-K0#!G0!.7)!)03!&I!.7)!67-?.)%!+,.,%)!4)5)-%67!/5!?%)5)0.)3#!
A#" >&06(,5/&05!-03!4)6&**)03-./&05!.&!.7)!+&6-(!>&*?-0@!This thesis has mainly examined an international manufacturing company that investigates the possibility to improve supply chain performance. Overall, the focal company wants to increase the level of integration among supply chain members. In addition, the merger has brought potential supply chain possibilities, which could result in a competitive advantage if utilised. By conducting interviews with 22 employees, managers and executives at the focal company, the main areas of difficulty identified are:
• information management
• inventory management Within information management, the main problems relate to the use of different ERP systems as well as operations at the CWs not being standardised. The main problem identified within inventory management is the sub-optimisation of inventories at CWs and NWs. In general, the identified problems are caused by lack of integration in the downstream supply chain. This is especially noticeable since the downstream supply chain members (i.e. the central unit, CWs and market and sales companies) in reality are the same company. According to literature, capabilities as collaboration, coordination and information sharing among supply chain members, are key factors to successfully manage today’s complex supply chains. These capabilities also ensure gaining an integrated supply chain. The focal company therefore possesses a great opportunity to improve supply chain performance, since only internal operations and management in reality are affected. Although, a critical aspect concerns that the reason for change can be communicated and fully accepted within the organisation.
The policy of VMI mainly focuses around inventory management and information sharing to improve supply chain integration among supply chain members, and thereby improving supply chain performance. It has therefore been considered an appropriate policy that could help the focal company solve identified problems and in reaching its vision.
In addition, the results from the conducted VMI readiness framework also imply that VMI is an appropriate policy to implement at the focal company. By complementing the VMI policy with a consignment stock agreement at the CWs, which is promoted by both literature as well as the senior management consultant, it is possible to also gain the advantages of having a single-owner of all inventories. The main benefits with VMI with a consignment stock agreement are:
• Firstly, it could provide a suitable platform for the company in future supply chain developments, such as if considering inventory regionalisation instead of having inventory in each country, as in the current state.
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• Secondly, it could contribute to a decreased total cost of inventory for the entire supply chain. This was the case of Ericsson when they established a new supply chain structure, including four centrally owned distribution centres. In addition, such a supply chain structure enables transferring spare parts between warehouses without unnecessary internal invoicing.
If a future objective is to develop a similar supply chain structure as the one developed at Ericsson, the authors recommend the focal company to implement a consignment stock agreement. However, if the focal company not considers the ability to easily transfer spare parts between warehouses to be beneficial, a regular VMI policy is recommended. Such a policy has been implemented at Volvo CE and is by them considered beneficial for the improvement of supply chain visibility, collaboration and inventory management. However, the focal company is by the authors also recommended to consider the possibility of expanding the level of information sharing and cooperation to also include suppliers upstream the supply chain. Thereby, the policy of CPFR could be considered as a future alternative. Although, given the large investments needed in CPFR (due to cost, i.e. the sharing of POS data), only large suppliers should be included in such collaboration.
A final finding concerns the focal company’s supply chain vision, which by the authors is considered vaguely formulated. To really take advantage of the opportunities the merger implies, and to succeed with implementing a VMI policy, the supply chain vision needs to be better clarified and justified, and well founded in the company. In addition, a well-founded and justified vision could simplify supply chain decision-making, since changes would become easier to motivate and implement if they are aligned with the company strategy and vision.
A#1 R)0)%-(!H7)&%)./6-(!>&06(,5/&05!`/.7/0!.7/5!5)6./&0N!)-67!&I!.7)!5,'TU,)%/)5!-5!K)((!-5!.7)!*-/0!%)5)-%67!U,)5./&0N!-%)!-05K)%)3#!!
!6:EF6",4(G/(;9"'$%<%#+$%&'(&<(*+%'(+,"+.(&<(9%<<%#67$4(The areas of difficulty identified at the focal company mainly concern information management and inventory management. These areas are highly debated in literature and considered critical since coordination, collaboration and information sharing among supply chain members increase supply chain integration. In today’s global supply chains, these capabilities are therefore crucial to increase supply chain performance by aiming at successful Supply Chain Management.
The importance of these capabilities are in addition supported by the findings gathered at Volvo CE and Ericsson, who received improved inventory management and visibility by enhancing information sharing and collaboration among supply chain members. The results were a decreased inventory level in the supply chain from a global perspective, as well as simplified inventory transfer between warehouses, leading to reduced capital tied up and supply chain costs.
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This implies that: • /0I&%*-./&0!*-0-C)*)0.!!• /0D)0.&%@!*-0-C)*)0.!!
are considered important areas to focus on to successfully manage supply chains of international manufacturing companies. As a consequence, the authors suggest that international manufacturing companies should evaluate their performance in these supply chain areas to find improvement potentials. This focus enables the development of a sustainable supply chain and could thereby generate a competitive advantage. Especially in the global world of today when competition among companies more and more concerns supply chain performance.
!6:EF6",4(H/(08&&.%'3(.61174(#8+%'(1&7%#4(From the examined literature and after conducting external interviews with the representative at Volvo CE and the senior management consultant, the authors conclude that the benefits of VMI mainly concerns:
• Supply Chain Integration
• Information Sharing
• Inventory Management Thereby, VMI is considered appropriate to implement when an international manufacturing company needs to improve its operations within any or all of these three areas.
Although, to gain all advantages associated with the sharing of POS data, all supply chain members need to be included in the collaboration. This implies that CPFR should be examined as an alternative to VMI. However, the level of integration a company aims for should depend on the company specific context and needs, since the implementation costs otherwise may exceed the benefits of such an implementation. Thereby, from an economical perspective, international manufacturing companies should not include minor suppliers in such collaboration, since it might not be economically valid.
!6:EF6",4(I/(>,","F6%.%$".($&(*+'+3"(#8+'3"(A%$8%'(.61174(#8+%'.(An additional finding of this research concerns prerequisites of how to manage supply chain change successfully. The consultancy expert, the representative at Ericsson, as well as the literature, stresses the importance of developing a clear vision (i.e. what the changes are meant to improve) to successfully manage change within supply chains. This is particularly important due to the complex nature of supply chain change. The representative from Ericsson also stressed the importance of communicating the vision and the desired future scenario to everyone clearly, as well as to ensure that the vision is well founded in the company. Managing this requires the development of an understanding of the current supply chain and how it performs, i.e. identifying problems with the current state. Otherwise, motivating a change becomes a difficult task.
(
68
@+%'(,"."+,#8(F6".$%&'/(J&A(#&679(.61174(#8+%'(1",<&,*+'#"(:"(%*1,&2"9(%'(%'$",'+$%&'+7(*+'6<+#$6,%'3(#&*1+'%".K(To conclude, in order to improve supply chain performance in international manufacturing companies, these should focus on increasing supply chain integration by enhancing information sharing and coordination between supply chain members. This would support companies solve problems related to information and inventory management which in this research have been identified as the main areas of difficulty in international manufacturing companies. These areas of difficulty could be managed by the usage of supply chain policies such as VMI and CPFR, which aims to improve supply chain performance by increased supply chain integration. In addition, to successfully manage and motivate supply chain changes, the development of a distinct vision is essential.
=8"&,"$%#+7(#&'$,%:6$%&'/(CL$"'.%&'(&<($8"(.61174(#8+%'(9"#%.%&'E*+-%'3(<,+*"A&,-(In this research, the supply chain decision-making framework developed by Chopra and Meindl (2010) has been applied to describe the supply chain of the focal company. The authors have considered the framework useful; however for it to be applicable in an international and rapidly changing environment some additions are suggested. Firstly, the framework should include Company and Supply chain vision, to ensure alignment within the strategic level. Secondly, Legal should be added as an additional cross-functional driver. Further, the authors suggest the extended framework to be used to describe the current and future state within a company as well as the strategy to achieve the latter, to manage supply chain change successfully. Thereby the framework could be used to identify areas of difficulty, which need to be solved to enhance supply chain performance. The framework could therefore support companies evaluate the current and a desired future stage in accordance with the change management literature, particularly the framework developed by Greer and Ford (2009). The suggested changes are illustrated in Figure 5.1 and Figure 5.2 in the end of the discussion chapter, as well as in Appendix 5.1 and Appendix 5.2.
A#9 +,.,%)!4)5)-%67!Future research should concern a verification of the extended version of Chopra and Meindl’s supply chain decision-making framework among international manufacturing companies, especially the importance of the added parts Legal and Vision. It might also be interesting to evaluate whether the framework is applicable in other contexts were supply chain performance is of great importance.
Even though the conducted research has contributed to verifying the VMI readiness framework developed by Niranjan et al (2012), the framework is still in need of a more extended verification. An additional manner of which to verify the model could be to evaluate different companies’ scoring compared to their future development. In other words examining whether companies that have scored high on the framework actually implement the policy in the future, and whether this implementation becomes successful.
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Y,++,''G!PZ![!O1()&(+,G!TZ!\:554]!EQ%1#+(3-!'2&!&Q%&+(&36&9!#<!6#11,8#+,'()&!%1,33(3-!(3('(,'()&9Z!G0.)%0-./&0-(!a&,%0-(!&I!$7@5/6-(!</5.%/',./&0![!:&C/5./65!J-0-C)*)0.#!!K4\R]G!%%Z!:FFC:?/Z!
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Y0+-&99G!@ZG!_L,+3-G!YZG!*2,LG!JZG![!S&!P,''#9G!"Z!\:55:]Z!E32,36(3-!),10&!9'+&,$!,-(1('.N!'2&!I`!9%&6(,1('.!62&$(6,1!(3709'+.Z!R,%&?)-0!J-0-C)*)0.!a&,%0-(G!:5\:]G!%%Z!4//C:4:Z!
Y.-8,11&G!UZ!EZG!YaG!EZG![!M+a31,37G!*Z!EZ!\:54:]Z!P,3,-(3-!(3'&+3,'(#3,1!90%%1.N!@2&!8,1,36&!8&'L&&3!'#',1!6#9'9!,37!609'#$&+!9&+)(6&Z!G03,5.%/-(!J-%V)./0C!J-0-C)*)0.G!;"\K]G!K/R^R54Z!
"2&3G!bZPZG!U(3G!;Z"ZG![!"2&3-G!_ZUZ!\:545]Z!"2,33&1!6##+7(3,'(#3!037&+!6#39(-3$&3'!,37!)&37#+C$,3,-&7!(3)&3'#+.!(3!,!7(9'+(80'(#3!9.9'&$Z!Q%-05?&%.-./&0!4)5)-%67!$-%.!RH!:&C/5./65!-03!Q%-05?&%.-./&0!4)D/)KG!;A\F]G!?K4^?RKZ!
"1#99G!SZ!bZG!b,6#89G!PZ!,ZG!*L(3VG!PZG![!W&88G!MZ!*Z!\:55?]Z!@#L,+7!,!'2&#+.!#<!6#$%&'&36(&9!<#+!'2&!$,3,-&$&3'!#<!%+#706'!6#$%1&Q('.N!*(Q!6,9&!9'07(&9Z!a&,%0-(!&I!F?)%-./&05!J-0-C)*)0.G!1A\=]G!=/5^F45Z!!
S,3&9&G!AZ!\:55H]!S&9(-3(3-!"A>B!6#11,8#+,'(#39N!(39(-2'9!<+#$!9&)&3!6,9&!9'07(&9#!G0.)%0-./&0-(!a&,%0-(!&I!F?)%-./&05![!$%&3,6./&0!J-0-C)*)0.G!:H\:]G!%%Z!4?4C:5RZ!
S,+L(92G!PZ!TZG![!O7,2G!OZ!PZ!\:545]Z!D&37#+!$,3,-&7!(3)&3'#+.!$#7&1!<#+!9(3-1&C)&37#+!$01'(C+&',(1&+!90%%1.!62,(39Z!R,%&?)-0!a&,%0-(!&I!F?)%-./&0-(!4)5)-%67G!1O;\K]G!RHK^R?RZ!
S0,3G!cZG![!U(,#G!@Z!WZ!\:54K]Z!O%'($(d,'(#3!#<!+&%1&3(92$&3'!%#1(6(&9!<#+!7&6&3'+,1(d&7!,37!6&3'+,1(d&7!6,%,6(','&7!90%%1.!62,(39!037&+!),+(#09!7&$,379Z!G0.)%0-./&0-(!a&,%0-(!&I!$%&3,6./&0!R6&0&*/65G!";1\4]G!4/R^:5RZ!
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>(92&+G!PZ!\4//H]!W2,'!(9!'2&!B(-2'!*0%%1.!"2,(3!<#+!h#0+!A+#706'i!b-%D-%3!c,5/0)55!4)D/)KG!P,+62CT%+(1G!%%Z!45=C44FZ!
>#+7G!bZSZG!>#+7G!UZWZ![!SfT$&1(#G!TZ!\:55?]Z!jB&9(9',36&!'#!62,3-&N!'2&!+&9'!#<!'2&!9'#+.kG!26-3)*@!&I!J-0-C)*)0.!4)D/)KG!KK\:]G!%%Z!KF:CHHZ!
70
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Mm$mnG!PZG!b&LV&9G!EZ!PZG![!Y##V8(37&+G!bZ!_Z!\:55?]Z!;$%,6'!#<!6#39(-3$&3'!(3)&3'#+.!,37!)&37#+C$,3,-&7!(3)&3'#+.!<#+!,!'L#C%,+'.!90%%1.!62,(3Z!G0.)%0-./&0-(!a&,%0-(!&I!$%&3,6./&0!R6&0&*/65G!""9\:]G!=5:^=4HZ!
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72
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&,.6&*)5#!Y#9'#3G!P,99,6209&''9N!_,+),+7!Y09(3&99!*62##1!A081(92(3-!"#+%#+,'(#3Z!!!@#33X0(9'G!YZ!\:545]Z!$%&Y)V.()30/0C#!K+7!&7Z!*'#6V2#1$N!Y#33(&+!I'8(173(3-Z!W,3-G!WZ!hZ!"ZG!_&3-G!*Z!_ZG![!"2,0G!AZ!hZ!`Z!\:55H]Z!B,??(@!>7-/0!J-0-C)*)0.H!G55,)5!/0!.7)!g)K!
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,37! '2&! 9#6(,1! 96(&36&9Z! q&C8##Vr! @&,62&+! "#11&-&! A+&99Z! T),(1,81&! ,'! M##-1&! Y##V9!qT66&99&7!44!O6'#8&+!:54:rZ!
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Toyota (2013). Interviews at Toyota Material Handling Europe, as well as information gathered in the company’s IT system [Accessed during 14 January 2013 – 17 April 2013].
1
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Ericsson AB (EAB) consists of approximately 130 corporations of which half of them are local VAT registered (represent 40 % of the sales volume) while the other half consists of Branch Offices (BOs – represents 60 % of the sales volume). This division makes it possible to the local VAT registered corporations (further referred to as local sales companies) to manage sales locally, while each BO has EAB as contract manager, even though BO’s sometimes manages and owns parts of contracts. This implies that BO’s do not generate any profit. Instead it is EAB that invoices end customer. The use of both local registered corporations and BOs affects the supply chain structure. EAB has one uniform and globally used ERP-system, SAP, which provides complete traceability and control of goods, transactions and inventory. Approximately 10-15 years ago, the logistics/distribution operation was outsourced with the aim to minimize costs. However, the result was not as good as had been expected, especially concerning global volume and lead-time optimisation.
The model used to manage customer orders was based on the make/buy to order (MTO/BTO) principle. This model of “one size fits all” was driven in order to optimise the management of products. However, the outcome became that customers did not get the focus they required. Furthermore, the model did not support the level of flexibility and trust customers demanded.
!"#$%&''()$*"+,-$%./&0.&/#$12$3/,0441-$Before the change, all MTO/BTO orders were centrally consolidated in Sweden with a relatively long lead-time as consequence (15-20 weeks). The long lead-time contributed to a low level of trust at the local sales companies, which resulted in orders to be made on speculation for the sales companies to manage their customer demands. This caused products to be allocated, which in turn resulted in a high level of capital tied up in products as well as a low material and product turnover, especially at local sales companies, were an unnecessarily large inventory was kept due to the low level of trust towards the central units ability to deliver the products. This resulted in an increased amount of capital tied up in products within the entire supply chain.
Instead a strategy with hubs or EDCs (Ericsson Distribution Centres) was developed. The EDCs were established in Singapore, Shanghai, Panama, Dubai and Mexico. Their locations were mainly chosen due to where global transportation hubs already were located as well as where the customers had the highest density. The new supply chain structure was a prerequisite to be able to segment the supply chain and to develop flexibility by delaying the point where a product became customer specific. This implies that the local sales companies place orders towards their specific EDC, instead of everyone ordering through Sweden. This has resulted in a largely reduced lead-time (today a maximum of 14 days), which in turn resulted in prerequisites for increasing the trust between supply chain members. Today, this has resulted in increased flexibility, a lower level of capital tied up, as well as increased customer satisfaction. Furthermore, the centrally owned EDCs resulted in the possibility to contain inventory of finished goods as a complement to BTO/MTO, i.e. the capability to make-to-stock (MTS) and buy-to-stock (BTS) were introduced. As consequence, it became possible to keep inventory of high-runners as finished goods. All products located at these hubs are owned by EAB until the material is picked, packed and shipped to a specific customer.
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Each EDC has product prices for incoming and outgoing goods. However, goods are not bought or sold when transferred between EDC’s, instead a transfer order is established. These transfer orders between EDC’s mainly comes from the central unit (PA), although transfer orders can also be established directly between EDC’s. The company has complete visibility of inventory, since EAB sees the inventory at EDCS’s, BO’s and local sales companies. Although, only BO’s and not the local sales companies can see the inventory level at EDC’s. Furthermore, neither BO’s nor local sales companies can see the inventory located at other BO’s/local sales companies. Due to the possibility to buy larger batch sizes to the EDC’s compared to the local sales companies, the new supply chain structure resulted in the possibility to reduce costs through economies of scale. Furthermore, this made it possible to tie local suppliers to the EDC’s. This however, resulted in some resistance from the sales companies, since they no longer had the possibility to choose their own suppliers together with the risk of increasing lead times of the products. However, the change resulted in shorter lead times and decreases in costs, which in turn contributed to a higher trust towards EAB and the EDC’s. This entailed a decrease of inventory costs by 50% transportation costs by 30%. The reason was due to the possibility to plan transportations better, and only send fully loaded containers to the EDC’s. They also practice the use of standard modules, which have decreased the amount of articles from tens of thousands, to thousands,
Today, forecasting is used to decide the amount of products to keep as finished goods. Each EDC deliver their forecast to the centrally managed Product Area (PA), in Sweden, which manages the global inventory planning. Since EAB owns the EDCs, the total forecast becomes very accurate since regional differences are managed by sending products between the EDC’s through transfer orders (which only entails small costs, such as custom fees). The level of flexibility in the former structure where very low, especially when spare parts got stuck at the BO’s, and sales companies, which often resulted in spare parts becoming obsolete. This resulted in a need to produce new products to other customers, although the product already existed as inventory, however, at the “wrong” place. From a cost perspective it was therefore considered important to ensure the inventory at local sales companies was minimised. Furthermore, since the use of EDC’s have resulted in the point of sales now being positioned in the downstream supply chain, has contributed to spare parts no longer getting stuck at sales companies as much as in the former supply chain structure. EAB uses a consignment stock agreement towards their suppliers. EAB runs the warehouse but the supplier owns the goods until they are used by EAB. The suppliers appreciate the agreement since it ties EAB to them.
Overall, EAB uses a decoupled regional supply chain structure with a late customer point (i.e. where the products get customer specific). This has resulted in a lower level of capital tied up and a good total solution in the supply chain structure. The reason for the large changes was in a sense forced up on the company since they were in desperate need to lower total costs to survive on the market. The EDC structure has provided a better flow of goods all the way in the upstream supply chain, since unnecessary inventory throughout supply chain members has been able to be removed or decreased. Today, one is trying to decrease the number of suppliers used for different products in order to increase the order amount, and thereby receive the benefits of economies of scale.
5+-+6,-6$*"+-6#$Change projects as the one performed at Ericsson takes a long time to execute. Furthermore, such large changes are hard to motivate. A distinct vision of where the company wants to be, i.e.
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what benefits that should be achieved, is therefore crucial to succeed with the transformation. In addition, it is important to be able to communicate this vision clearly to everyone to ensure everyone involved is on the same track.
Large changes in a supply chain require the ability for companies to effectively manage change management. Areas of responsibilities might change within the company’s organisations during large transformations, which therefore often result in a need to adjust management groups on the higher levels of the company. In this specific case, the Production Unit lost the direct customer contact and instead became a supplier to the EDCs (regional inventories). In addition, the distribution organizations (EDCs) received new and greater areas of responsibility.
Although, that the change was necessary for EAB became clear after the notation of the global distribution and logistics costs to exceed the cost of production. This trend would in addition increase due to increased fuel and energy costs in the future. In general, the understanding of the current situation and future impact on the company, as well as the desired future scenario and motivation to change, need to be well grounded in the company before the transformation begins. Furthermore, it needs to be well described and documented in a distinct top/down vision, to avoid protracted internal politics and frustration further on in the process.
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